Australian wine-making and distribution company, Treasury Wine Estates, has agreed to acquire a majority of British alcohol producer Diageo's US and UK wine operations for $552m (£361.2m, €484.8m). The deal, which is in line with Treasury's recent acquisition strategy, is expected to double its revenue from luxury and premium wines in the American market.
Chief executive at Treasury Wine, Michael Clarke said, "[The acquisition] will be a game-changer for our US brands, providing us with an immediate opportunity to (increase) our growth in the U.S., Canada, Asia and Latin America."
Clarke has been eyeing acquisitions of higher quality with more profitable US labels, after the Melbourne-headquartered company had a bad experience while trying to expand operations via the organic route. The company, recently had to destroy thousands of cases of unsold low-end wine, forcing it to rethink its strategy in the US.
"This acquisition will transform our U.S. business into a larger player of scale in the attractive luxury and masstige segments of the high growth U.S. market," Clarke added.
With regards to the acquisition, Treasury Wine will raise $350m through a fully underwritten rights issue. It also plans to assume capitalised leases of $48m.
The company is well known for its brand, Penfolds, and will add Diageo's Sterling Vineyards, Blossom Hill and Piat d'Or to its portfolio, post the deal. It will offer two new shares for every 15 Treasury shares to stakeholders.
A year ago, Treasury had received takeover interest from private equity companies at A$5.20 (£2.46, $3.76) a share, but Clarke had rejected it. Treasury's shares closed at A$6.57 on Tuesday, (13 October) before it made the Diageo announcement.
The Australian winemaker has forecast its pretax earnings to grow up to 29% until 30 June 2016, due to strong sales in the first quarter.