Exactly a week ago Kohlberg Kravis Roberts & Co established the price of admission to Treasury Wine Estates’ data room. Today a rival private equity firm demonstrated it is prepared to contemplate paying that price or more.
Last Monday Treasury announced that, after KKR had lifted its indicative offer for the sprawling wine group from $4.70 a share to $5.20 a share, it would allow the group to conduct the due diligence investigation that had been denied it at its opening price.
Today Treasury said it had received another indicative and non-binding proposal from another global private equity investor to acquire all of Treasury’s shares at the same $5.20 a share level as KKR’s proposal. Subject to the negotiation of a confidentiality agreement it too would be allowed access to due diligence.
Speculation of the identity of the 'investor' (which Treasury said had requested be kept confidential for ‘a period of time’) immediately centred on TPG, which is known to have looked closely at Treasury in the past and done a lot of work on a potential offer.
In fact all the major private equity firms would have thick files on Treasury, given the strength of its collection of wine brands (Penfolds in particular) and its history of spluttering performance.
TPG would face a particular issue if it were interested in acquiring Treasury. Post-Prohibition 'tied house' rules in the US provide for a clear separation of supplier of alcoholic products, distributors and retailers.
TPG has interests in US casinos and therefore in venues that are retailers of wine. If it is going to have a tilt at Treasury, however, it would appear reasonable to assume it has a plan to address that issue.
With improving supply-demand fundamentals for premium wines after a decade and a half of excess supply, Treasury’s build-up of a near-$500m store of premium wine inventory and latent profitability and, perhaps, an opportunity to carve Penfolds out of the group the timing appears right for an opportunistic move on the group.
The timing also doesn't allow Treasury's new chief executive Michael Clarke an opportunity to demonstrate that he can finally extract decent performance from the group's portfolio. Clarke has, in a few months as chief executive, got off to a quite widely-applauded start, but will need some time before the changes he has made show up in Treasury's financial performance.
The KKR camp had believed they had timed their approach well, with the obvious industry players distracted by their own issues, the private equity universe having had plenty of prior opportunities to have a crack at Treasury without anything emerging and Treasury itself having no positive record to point to in defence of its independence.
The moment the Treasury board signalled that $5.20 a share ($3.4bn) was the price at which prospective bidders would get access to due diligence, however, was always going to test that assumption and flush out any prospective counter-bidders. As it has.
An obvious conclusion from the latest development is that Treasury’s days as a listed company are probably numbered.
Unless the private equity firms find something very unpleasant in their due diligence programs that hasn’t yet been publicly disclosed by Treasury there is probably going to be a contest for the board’s support for a scheme of arrangement proposal at something above $5.20 a share.
Even if there weren’t a contest -- even if one of the prospective bidders walked away after kicking Treasury’s tyres -- $5.20 a share is self-evidently a price Treasury directors believed they have to take seriously.
That makes it almost inevitable that ownership of Treasury will change, at least for the next few years before it is recycled as private equity cashes out and it reappears, probably in a rather different form.