Treasury Wine in $1.6b bet on California’s Daou Vineyards

“I think we’ve paid the right price for this business,” Mr Ford said. “We also think it’s early in its growth curve.” He said the implied multiple of 12.8 times projected calendar 2023 earnings was a fair price.

“We believe we can have a very strong second business next to Penfolds,” Mr Ford said. “Penfolds is not going to be starved of any capital.”

Daou is forecast to generate sales of $US212 million in the 12 months to December 31, with 69 per cent of its sales in the $US20 to $US40 per bottle price bracket. About 13 per cent of sales are for wines priced above $US100 per bottle. Daou’s profit margins are running at about 30 per cent.

Mr Ford said the acquisition was a continuation of the group’s focus on higher-priced wines in a market where drinkers around the world are shifting to more premium wines, and away from lower-priced wines.

“It’s right in the sweet spot,” Mr Ford said. “We’re moving to where the consumer is going.”

He rejected suggestions that Treasury Wine had a patchy track record in the US. Foster’s, the beer group which owned many of the Treasury Wine brands before they were split off into a separate company in 2013, paid $2.9 billion for Californian wine group Beringer in 2000. That was a drain on value for many years; Beringer is still part of the Treasury Wine portfolio.

Bank of America analyst David Errington said on an investor call he did not understand why Treasury Wine would want to “keep doubling down” on the US where its overall business was an underperformer and where earnings were lower than they were in 2019. “I just don’t get it,” Mr Errington said, adding that Daou was producing a return on capital below 7 per cent.

Mr Ford instead said his management team should be judged on its decisions since he had taken the helm three years ago. He pointed to the success of its last big acquisition, the $434 million purchase of Frank Family Vineyards in California in late 2021.

“I think we’ve made really good decisions in the last three years,” he said.

Daou employs about 250 people and has a cellar door in the Adelaida district of the Paso Robles region which attracts about 90,000 visitors annually. It is forecast to generate earnings before interest and tax and the SGARA accounting standard of $US63 million in this year.

As part of the deal, Treasury Wine is also undertaking a $157 million placement of shares to the Daou owners at $11.97 a share.

Mr Ford said the acquisition of Daou had come after months of negotiations. It was not a competitive sale process where rivals were also seeking to acquire the business. Mr Ford said Treasury Wine had been monitoring it closely since acquiring Frank Family Vineyards two years ago.

Treasury Wine was not abandoning the under $US15 per bottle market in the US, but was shifting toward growth categories. Daou generates about 70 per cent of its sales in shops and 30 per cent in restaurants and bars.