(Reuters) – Australia’s Treasury Wine Estates Ltd, one of the world’s biggest wine companies, rejected takeover offers from private equity firms saying bids that valued it at $3 billion were insufficient and required it take on too much debt.
The news sent shares in the owner of the Penfolds and Beringer labels sliding 13 percent, and puts it under renewed pressure to prove it can cut costs, resolve problems with oversupply at its U.S. division and boost earnings in Asia.
Treasury Wine had received two bids of A$5.20 per share – one a sweetened offer from KKR & Co LP and partner Rhone Capital LLC, and another from an unidentified firm that sources have said was TPG Capital Management LP.
But the company said discussions with owners of half its shares generated “clear feedback from almost every one…indicating that they believed a price of $5.20 per share undervalued the company.”
Treasury Wine CEO Mike Clarke, who took the helm in March, also said in a teleconference with reporters that the potential deals would have involved higher levels of debt than the company was comfortable with and cited a regulatory concern without specifying what it was.
Once it became clear on Friday that neither party could improve its offer, the company ended the talks. Clarke added that the decision to cut ties was amicable and he did not expect any further bids. “I think it’s over, is my point of view,” he said.
The failed talks underscore a wide range of opinions on how to value Treasury Wine. Analysts’ estimates of fair value stretch from A$3.50 to A$7.00 per share.
The world’s biggest listed standalone wine firm has seen oversupply problems in the United States lead to the destruction of thousands of cases of stock and it has also suffered slower demand from China amid a crackdown on luxury gifts to officials.
“You’ve effectively gone through two previous management teams that have said the right things and haven’t delivered… it’s hard to see what’s going to change that,” said Morningstar analyst Daniel Mueller.
Weakness in the Australian dollar in recent weeks may help the company’s export sales in the short term but A$5.20 was a “stretched valuation”, he added.
KKR said in a statement that the company’s management had “shown great capability and understanding of the business” and that it wished them well. TPG declined to comment.
It is the second large private equity buyout to fail in Australia this month. SAI Global Ltd, a compliance advisory firm that put itself in play after a A$1.1 billion indicative offer from local buyout specialist Pacific Equity Partners in May, also ended due diligence without a bid.
Australian inbound M&A activity slumped 86 percent in the June-September period from the previous quarter, the sharpest such decline since 1989 as plummeting commodity prices and a faltering local stock market challenged the appetite of overseas investors.
Treasury Wine’s shares were trading at A$4.43 by mid-session – some 9 percent above levels in May before KKR made its first approach – and giving the company a market capitalisation of A$2.9 billion ($2.5 billion).
Clarke has embarked on a restructuring that includes a A$280 million impairment charge on the value of its wine brands. The company will also separate out management of its lower-end brands from its more prestigious ones in Australia as it has begun to do in the United States.
A food and beverage industry veteran of more than 20 years who led a significant turnaround at Britain’s Premier Foods Plc , Clarke also advised KKR last year on a $2.5 billion bid for GlaxoSmithKline’s Lucozade and Ribena soft drinks.
But he has so far disappointed analysts who have long been calling for the company to spin off either Penfolds or Penfolds and other upmarket labels into a separate company.
Treasury Wine booked a A$100.9 million net loss for the year to June 30, down from a net profit of A$47.2 million the previous year. On Monday, it said its year-to-date performance is tracking ahead of plan but did not provide any further earnings guidance.