Australia Wine

Treasury Wine Estates to demerge Penfolds

Australian wine giant, Treasury Wine Estates, is considering to demerge its flagship brand Penfolds by the end of 2021, a well-known wine brand that is immensely popular in China and contributes to over half of the group’s earnings, the company has announced.

The news was announced yesterday by the group after reviewing a few of its options including selling the Penfolds brand.

The company says the potential demerger would facilitate the creation of incremental long-term value by allowing one team to focus on driving the luxury Penfolds multi-country of origin portfolio (Australian, French and US sourced propositions).

Meanwhile, TWE will also look into reducing its commercial portfolio particularly in the US, while “accelerating the mix-shift towards Luxury in New TWE.”

“New TWE” would include labels such as Wolf Blass, Lindeman’s and among others.

Michael Clarke, the outgoing Chief Executive Officer of TWE, said, “Penfolds accounts for approximately 10% of our volume, but well over half of our earnings, with unique resources and a differentiated execution focus compared to the remainder of our business.

“A potential demerger would enhance New TWE’s and Penfolds’ ability to pursue their own strategic priorities and deliver a stronger long-term growth profile under separate teams and ownership structures, in addition to enabling investors to more appropriately assess the fundamental value of the brand and its assets.”

Outgoing CEO of Treasury Wine Estates Michael Clarke will retire in September this year

Paul Rayner, Chairman of TWE said: “I am excited about the prospects that a potential demerger could bring for both New TWE and Penfolds. New TWE would remain the largest globally integrated wine platform in the world, with a diversified sourcing footprint, diversified end markets and significant opportunity ahead of it to continue the growth of its iconic brand portfolio across all markets. Penfolds is an icon of Australian luxury, with impressive margins and significant growth runway in Asia and globally.”

If the potential demerger were to be implemented, TWE shareholders would own a share in Penfolds and in New TWE proportional to their existing TWE holdings.

The news also came at a time when the wine giant is facing two potential class action lawsuits for possible breaches of sharemarket disclosure laws after its shareholders alleged that they were misled by the company when it adjusted its financial guidelines early this year due to the spread of COVID-19.

The troubled times in China, its most profitable market, together with wine glut in the US, forced the company to adjust its profit guidelines twice this year.

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