Sour grapes for Treasury as boss axed

Treasury Wine Estates will remain shackled to its distressed US business by refusing to sell the troubled asset, despite costing its CEO's scalp and the company's own chairman conceding it had failed to deliver on earnings expectations for 13 years.

The shock departure of Treasury Wine Estates boss David Dearie yesterday after less than three years in the role has sparked fears of further write-downs and senior management departures, drenching the balance sheet in red ink and hitting shareholders with even more losses.

"Further US write-downs or more drastic change may come as a new CEO starts with a clean sheet," said Citi analyst Gino Rossi.

Mr Dearie, a 25-year veteran of the beverages and hospitality industries, was anointed the first CEO of Treasury Wine Estates when it demerged from Foster's Group in late 2010 to create two stand-alone businesses covering beer and wine.

His opposite number at the beer arm, John Pollaers, also didn't last long in his role after the Foster's beer operation was bought out by global brewer SABMiller in 2011 for $12 billion.

Mr Dearie told BusinessDay on Monday that he was planning to take a family holiday in the US and would return to Australia in a few weeks to assess his future.

Shares in Treasury Wine Estates, which inherited a portfolio of wine brands from Foster's including Penfolds, Wolf Blass, Seppelt, Lindemans and Rosemount, plummeted nearly 10 per cent on yesterday's announcement that Mr Dearie had been shown the door after a review into his performance by the board.

Shares closed down 30¢, or 6.3 per cent, at $4.45 - a 12 month low.

The board review and decision to eject Mr Dearie was sparked by July's admission from Treasury Wine Estates that it had supplied too much cheap wine into the US market for several years, with that now coming home to roost to cause a $160 million write-down for 2012-13 as well up to $35 million of unwanted wine being destroyed in the US.

That admission in July, which included a profit warning, saw Treasury Wine Estates share price slump 12 per cent on the day and set the scene for Mr Dearie's sudden exit just over three months later.

Although analysts and investors have been calling on Treasury Wine Estates to dispose of its underperforming American wine business since the demerger - as well as before that when it was part of Foster's - chairman Paul Rayner yesterday doggedly stuck to the belief that there was still value in the business and it was of core importance to the company. "I remain confident that we can get an acceptable return out of the American business with the right management in place," Mr Rayner said.

"The US is a very important part of the business, I think half of our volumes are sold in North America, that's very significant and we need to focus on the assets there so we get the best return on them."

Its American arm also delivers up to one-third of Treasury Wine Estates' pre-tax profits and crucially soaks up a massive proportion of the company's Australian and New Zealand wine produced at its local factories.

However, Mr Rayner admitted the US operation, built around its flagship Beringer wine brand which Foster's bought for $2.9 billion in 2000 in an ill-fated and expensive global expansion, had never really done well under the Foster's/Treasury Wine Estates' structure.

Mr Rayner conceded a good Beringer performance was to be found in the historical records.

Analysts raised concern about the rushed nature of Mr Dearie's departure, questioning if major shareholders had exerted pressure on the board. "It reminded me of the call they made for the US inventory write-down in July, sort of rushed, I didn't feel like it had been particularly planned well," said Alex Beer, of CIMB Securities.

"The timing is questionable and we are scratching our head at it trying to make sense of it."

Mr Rossi of Citi added: "The timing of Mr Dearie's removal appears hurried and may have been driven by shareholders.

"Perhaps the board may also embrace shareholders' pressure to exit the US. We think this is a mistake. US earnings are depressed due to the inventory de-stocking and we expect the US wine cycle will be positive for US producers."

Mr Rossi said the market has concerns that Treasury Wine Estates' accounts lack transparency.

As a replacement for Mr Dearie is found, Treasury Wine Estates non-executive director Warwick Every-Burns will be temporary CEO.

Mr Dearie will leave with a payout of around $1.35 million, equivalent to one-year's pay.