TWE Buys Diageo’s UK and US Wine Business

Treasury Wine Estates (TWE) made public its intention to purchase Diageo’s wine operations in the US and UK today, Wednesday 14 October.

The acquisition will include both US based Chateau and Estate Wines, as well as the Percy Fox business in the UK for $754 million.

Media have been speculating for some months now as to whether Diageo would sell Diageo Wine, after the spirits business said it had received a number  of expressions of interest which it was considering.

“Wine is no longer core to Diageo”, Chief Executive of the company, Ivan Menezes said, explaining that the sale of its wine assets in the US and UK will instead allow Diageo to place a greater focus on what it considers as its core portfolio.

Mr. Menezes also said that the sale would enable Diageo to repay borrowings.

“With the completion of this transaction, Diageo will have released £1 billion from the sale of non-core assets since the start of the financial year. This proactive portfolio approach has focused the business, enhanced our financial strength, improved our returns and strengthened the business, positioning us even more firmly to deliver our performance ambition”, Mr. Menezes said.

As part of the purchase, TWE will also acquire the well-known Beaulieu Vineyards, Sterling Vineyards, Acacia, Provenance and Hewitt in the US, as well as the UK’s leading Blossom Hill wine brand, which the global wine business believes will return significant growth for TWE and its investors; so much so that TWE has updated its trading expectation for FY16 to $270million-$290million EBITS.

“The acquisition of Diageo Wine represents a highly compelling strategic and financial opportunity for TWE’s shareholders. Diageo Wine’s business is very aligned to our strategic roadmap and we expect that the acquisition will deliver long-term value creation to our global operations and to our shareholders”, Paul Rayner, TWE Chairman said.

TWE will also use fruit from the acquired vineyards to drive its Luxury and Masstige net sales in America, increasing the supply of fruit for the premium portfolio.

“This acquisition will transform our US business into a larger player of scale in the attractive Luxury and Masstige segments of the high growth US market. The additional supply of Luxury and Masstige wine will be a game-changer for our US brands, providing us with an immediate opportunity to step-change our growth in the US, Canada, Asia and Latin America”, Chief Executive Officer, Michael Clarke added.

Mr. Clarke also said: “The acquisition of Blossom Hill in Diageo’s UK wine business will provide us with the scale and critical mass to deliver enhanced value creation from our combined Commercial businesses by accelerating our separate focus on the Commercial portfolio, globally.

“Furthermore, Diageo Wine’s international partnerships and established agency brands potentially provide new opportunities to take select European wines to our customers and consumers in key growth markets, notably Asia and Latin America.”

The acquisition is expected to take three months to complete, following regulatory approvals. Once completed, Diageo will be left with the Argentinean wine business, Navarro Correas, Justerini & Brooks Wine Merchants, Mey Icki and USL wine brands, the Chalone brand and assets and the Acacia winery and vineyard.

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