Treasury Wine Estates is considering a demerger of the Penfolds business and associated assets into a separate company listed on the ASX by the end of next year.
“The decision to consider a demerger of Penfolds follows a detailed review of TWE’s portfolio and an assessment of both the optimal strategy and structure of the business, and builds on TWE’s internal operating model, which is focused on premiumisation and accelerating the separate focus for the Luxury versus Commercial portfolios globally,” the company says in a ASX announcement this morning.
“A potential demerger would facilitate the creation of incremental long-term value by allowing one team to focus on driving the luxury Penfolds multi-country of origin portfolio (Australian, French and US sourced propositions) while a separate team focuses on accelerating the mix-shift towards Luxury in ‘New’ TWE while also reducing and right-sizing the Commercial portfolio.”
CEO Michael Clarke said, “Penfolds accounts for approximately 10 percent of our volume, but well over half of our earnings, with unique resources and a differentiated execution focus compared to the remainder of our business.
“A potential demerger would enhance New TWE’s and Penfolds’ ability to pursue their own strategic priorities and deliver a stronger long-term growth profile under separate teams and ownership structures, in addition to enabling investors to more appropriately assess the fundamental value of the brand and its assets.”
Ahead of outlining the details of its strategic review, TWE says its top priority remains the health, safety and wellbeing of its global team, its partners “and all family members during these challenging and unprecedented times”.
“TWE would like to thank all of these valued stakeholders for their ongoing commitment and support, which will not only ensure that the business continues to operate through this period but is also well positioned to navigate to a stronger end-point once the COVID-19 pandemic subsides.”
Chairman Paul Rayner says, “I am excited about the prospects that a potential demerger could bring for both New TWE and Penfolds.
“New TWE would remain the largest globally integrated wine platform in the world, with a diversified sourcing footprint, diversified end markets and significant opportunity ahead of it to continue the growth of its iconic brand portfolio across all markets.
“Penfolds is an icon of Australian luxury with impressive margins and significant growth runway in Asia and globally.”
If the potential demerger were to be implemented, TWE says shareholders would own a share in Penfolds and in New TWE proportional to their existing TWE holdings.
The potential demerger remains subject to a detailed evaluation of the costs and benefits to shareholders, along with final Board, shareholder and regulatory approvals and the receipt of third party approvals on satisfactory terms.
“Subject to the stabilisation of market volatility and the global COVID-19 pandemic, if a decision is made to proceed and is approved by shareholders, the potential demerger is expected to be completed by the end of calendar year 2021.
“If completed, it is anticipated that the potential demerger would create a new top ASX 50-100 company listed on the Australian Securities Exchange for Penfolds and an ASX 100-150 company for New TWE.”
Chief operating officer Tim Ford says, “These initiatives will accelerate the separate focus on the Luxury versus Commercial portfolios, and will be implemented in an orderly manner over time to maximise potential gains on asset sales, minimise associated one-off cost impacts and minimise disruption to business performance while ensuring benefits are not compromised by the current economic or capital market conditions.”
TWE’s share price has slumped in recent months. Shares were trading at $17.70 on 24 January but have dropped significantly, trading at $10.56 yesterday.