Today the Board of Directors of Australian wine maker Treasury Wine Estates announced it has received a revised, increased offer to acquire all the company shared from giant US private equity firm Kohlberg Kravis Roberts & Co. L.P., founded and run by Henry Kravis and George Roberts, acting together with Rhône Capital L.L.C., another New York private equity firm.
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The new offer is still all cash, this time for about $4.84 (A$5.20) per share, and it has been made on behalf of funds managed by KKR and Rhône Capital, to be consummated by way of a scheme of arrangement if it should be accepted. The revised proposal reflects an increase of 10.6% compared to an earlier proposal from KKR dated April 16th 2014, which the Board of Treasury Wine Estates rejected in May.
The new offer also represents a total premium of about 41% to the Treasury Wine Estates closing share price on April 15th, 2014 i.e. – just before the offer was made – of $3.43 (A$3.69) per share. With 649.4 million shares presently outstanding the new bid is worth over $3.1 billion (A$3.38 billion) to the company’s shareholders, and the company’s shares bid up to just below the offer price on the Australian Stock Exchange after the new offer was announced.
Treasury Wine Estates is a global wine making and distribution business, based in Melbourne Australia. Formerly the winemaking subsidiary of the Foster’s brewing group, the company was spun off as a separate listed company on the Australian Stock Exchange in 2011.
The new offer has persuaded the board of Treasury Wine Estates, together with its advisers, that it is in the interests of its shareholders to at least engage further with KKR and Rhône, and to raise its skirt a little to show more than just a pretty ankle. Accordingly, subject to the negotiation of an appropriate confidentiality agreement, KKR and Rhône will now be allowed to conduct extensive internal due diligence on the company, on a non-exclusive basis.
A binding proposal is still some way off and remains subject to a number of conditions on both sides. These will include completion of due diligence to KKR’s and Rhône’s satisfaction; final approval of KKR’s and Rhône’s Investment Committees; availability of financing with all conditions precedent satisfied or waived prior to implementation of the transaction; execution of satisfactory definitive documentation customary for a transaction of this nature; and then, finally, unanimous recommendation as well by the Board of Treasury Wine Estates for the transaction.
To protect themselves from capital depletion during the due diligence period, KKR and Rhône have also stated that the payment of any dividends or capital returns prior to completion of any transaction would impact their valuation of the Treasury Wine Estates and, accordingly, would then need to be deducted from the price proposed – a completely normal condition in such deals.
The Board of Treasury Wine Estates carefully points out today that there is no certainty that the proposed transaction will result in a definitive offer for the company. Even if a firm offer does result, Treasury Wine Estates will then have to assess whether it delivers a value proposition that is superior to the expected benefits from their own renewed strategic plans, formulated under their new CEO Michael Clarke, a former Foods and Coca-Cola senior guy who was hired in March to lead an internal turn-around of the company.
Treasury Wine Estates’s own plans focus on increasing and accelerating consumer marketing investment in its brands; driving efficiencies and improving the company’s cost base; and address structural strengths and weakness within the business by focusing on cheaper brands separately from its luxury brands in Australia.
KKR had launched a new Asia-Pacific fund last year with $6 billion to spend, and this offer clearly follows from there. With the Australian Stock market bidding up the Treasury Wine Estates’ shares to just below the offer price today, clearly shareholders presently seem to be expecting a binding agreement is likely to ensue and that the company may indeed now be sold.