Treasury holds up to blunt KKR bid

If earnings hold up at Treasury Wine, KKR may be forced to raise the price of its bid, perhaps above $5 a share.

Private equity giant KKR’s apparent hopes for a collapse in Treasury Wine Estate’s earnings this financial year appear to have been dashed, with momentum holding up after a strong month of sales in May for the maker of Penfolds.

The company’s stock price has fallen some six per cent in the past week to $4.82 a share on expectations of an imminent downgrade amid the post Federal budget collapse in consumer confidence that has seen several other consumer-facing companies announce downgrades this week, potentially playing into the hands of KKR’s ambitious takeover offer for TWE at $4.70 a share.

Treasury declined to comment on its earnings outlook but it is presumed, in the middle of takeover talks, the company would be well aware of its continuous disclosure obligations.

The last few weeks of the year are crucial to local division earnings due to the release of the new Penfolds brands and trade talk says sales are holding up to expectations with momentum continuing this month.

KKR’s indicative offer price of $4.70 a share was looking okay with the falling stock price as consumer stocks across the board were being hit on downgrade expectations.

If the talk is right, Treasury Wine Estate will disappoint the bears and new boss Michael Clarke is comfortable with the trading performance.

The company has forecast earnings of between $190 and $210 million this year, down from $216 million last year.

Australian division earnings account for roughly half of company earnings and this time of year with the bin releases accounts for a significant proportion of local earnings.

There are still a couple of weeks to go but on present indications there will not be a profit downgrade this month.

Any collapse in the stock price would have helped advance the KKR offer but if earnings hold up it will be forced to raise the price of any bid — some in the market suggesting well over $5 a share.

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