Treasury Wine in $1.6b bet on California’s Daou Vineyards

afr.com:

Chief executive Tim Ford aims to turn California’s high-end Daou Vineyards that Treasury Wine Estates is buying in a $US1 billion ($1.6 billion) deal into a global brand like the Australian company’s flagship, Penfolds.

Mr Ford said Daou Vineyards, established in 2007 in Paso Robles, 300 kilometres north of Los Angeles, was generating 98 per cent of its sales in the US, but had the cachet and high quality to be transformed into a global brand.

The acquisition is partly funded by an $825 million capital raising at $10.80 per share. Treasury Wine shares went into a trading halt on Tuesday, having last changed hands at $12.10.

The shares have climbed 14 per cent since early July when they were worth $10.60, underpinned by the prospect of China removing punishing wine tariffs on Australian wine, with a five-month review of those tariffs having just begun.

Treasury Wines boss Tim Ford is going all out on US luxury wine.  Eamon Gallagher

Treasury Wine said on Tuesday the upfront cost of the buyout was $US900 million, plus an earn-out agreement of as much as $US100 million which applies if certain revenue targets are reached until the end of calendar 2027.

“I think we’ve paid the right price for this business,” Mr Ford said. “We also think it’s early in its growth curve”, adding that the implied multiple of 12.8 times projected calendar 2023 earnings was a fair price.

“We believe we can have a very strong second business next to Penfolds,” Mr Ford said. “Penfolds is not going to be starved of any capital”.

Daou Vineyards was set up by brothers Georges and Daniel Daou in 2007. In calendar 2023 it is forecast to generate $US212 million in sales, with 69 per cent of those in the $US20-$US40 per bottle price bracket. About 13 per