Drums beating for Treasury's US exit
The message is simple: sell the business or face investor wrath, including a downgrade by one of the leading analysts, David Errington at Merrill Lynch.
It comes as class action lawyers Maurice Blackburn and litigation funder IMF are leading the charge to launch a class action, alleging Treasury Wines misled the market when it made a $160 million write-down including up to $35 million to buy back and pour down the sink "aged and obsolete inventory" held by its US distributor partners.
In a report issued on Wednesday, Errington made it clear he did not believe the company could turn around the US business and warned if it kept hold of it, then his valuation of the company would be at risk. "It is difficult for a management team or board to throw in the towel and admit defeat ... relinquishing value allocated for brand equity and/or management contribution to the physical assets. However, in Treasury Wines' case, we believe this would be the best outcome for shareholders," he said.
The reason is simple. Every day it kept the US business, value was being destroyed and it was putting at risk the Australian business, through a lack of focus and the potential loss of key staff.
The Australian business performed exceptionally well in 2013 yet team members within the TWE group received no bonus as global targets were not met because of the fiasco in the US.
The latest September quarter Nielsen figures show retail sales of Treasury Wines' Australian products grew 8.7 per cent in volume and 12.2 per cent in value, compared with negative volume growth for the overall market and a 3.8 per cent lift in value. In the June quarter, Treasury Wines' retail sales grew 14.1 per cent by volume and 18.9 per cent by value.
"Treasury Wines has shown over a long period it lacks the ability to succeed in the US," Errington warns in a note. This is why key investors are keen for the company to sell the business.
The US business is valued at an estimated $1 billion yet generates $20 million of earnings, which is a woeful performance.
In Australia the business contributed $220 million to group earnings. Errington forecasts earnings will more than double to $500 million by 2016.
Frequently Asked Questions about this Article…
Investors are pushing for the sale of Treasury Wine Estates' US division because it is underperforming and dragging down the overall business. The US division is valued at $1 billion but only generates $20 million in earnings, which is considered poor performance. Selling it could prevent further value destruction and allow the company to focus on its successful Australian operations.
The US division is negatively impacting Treasury Wine Estates' Australian business by diverting focus and potentially causing the loss of key staff. Despite the Australian business performing exceptionally well, global targets were not met due to the US division's issues, resulting in no bonuses for team members.
Treasury Wine Estates' Australian business has been performing exceptionally well. In the latest September quarter, retail sales of its Australian products grew by 8.7% in volume and 12.2% in value, outperforming the overall market, which saw negative volume growth.
If Treasury Wine Estates does not sell its US division, it risks further value destruction and could face investor wrath, including potential downgrades by analysts. The ongoing issues in the US could continue to negatively impact the Australian business and overall company performance.
Class action lawyers Maurice Blackburn and litigation funder IMF are preparing to launch a class action against Treasury Wine Estates. They allege that the company misled the market when it made a $160 million write-down, including up to $35 million to buy back and dispose of 'aged and obsolete inventory' held by its US distributor partners.
Treasury Wine Estates' US division is valued at an estimated $1 billion but generates only $20 million in earnings, which is considered a woeful performance. This stark contrast highlights the division's underperformance and the need for strategic decisions.
Analysts, including David Errington from Merrill Lynch, have expressed skepticism about Treasury Wine Estates' ability to succeed in the US market. Errington has stated that the company lacks the ability to turn around its US business and believes selling it would be the best outcome for shareholders.
Selling the US division could benefit Treasury Wine Estates by halting value destruction and allowing the company to concentrate on its thriving Australian operations. This strategic move could enhance overall company performance and shareholder value.
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