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* KKR teams up with Rhone Capital for $3.1 bln takeover
* TPG has matched KKR-Rhone offer - source
* KKR plans to offload vineyards, brands - bankers
* KKR May relist revamped company in U.S. under Penfolds
name - banker
By Denny Thomas and Stephen Aldred
HONG KONG, Aug 12 A KKR & Co-led takeover of
Australia's Treasury Wine Estates Ltd would likely lead
to a long and drastic overhaul, resulting in a much smaller but
more profitable company, bankers familiar with the matter said.
KKR, which has teamed up with Rhone Capital for its $3.1
billion proposal, will also look at a U.S. listing for the
revamped business which would be centred on upmarket labels and
would likely be renamed Penfolds for its flagship brand, one
The KKR-Rhone bid was matched this week by a rival private
equity firm, which a source with direct knowledge of the matter
has said is TPG Capital Management LP. But KKR-Rhone
have put in far more work, bankers say, and Australia media have
reported the group has secured financing for the deal - giving
them a significant head start.
Treasury Wine, one of the world's largest wine companies
with 83 brands, has seen profits slump in the past three years,
hurt by a global wine glut that pushed down prices and led to
the costly destruction of some U.S. inventory.
Given the challenges, bankers do not expect KKR, if
successful in its bid, to fully exit the business in 6-7 years,
which is its average holding period for an investment.
"This is not a short-term play, there are a lot of
challenges to overcome," a separate banker said. "They have to
patiently go through the restructuring, sell vineyards and
brands to make it work. It is not going to be easy," the person
The competing bids are for A$5.20 per share. KKR this month
roped in fellow buyout firm Rhone Capital to help sweeten by 11
percent a rebuffed April offer. That persuaded the company,
which has been working on its own restructuring steps under new
CEO Michael Clarke, to open its books.
The bid was then matched by TPG on Monday, pushing the
vintner's shares to A$5.33, 44 percent higher than levels seen
just before KKR's first proposal.
KRR and Rhone declined to comment on plans for the company
if a takeover went ahead. TPG's plans for Treasury Wine were not
immediately known. An external spokeswoman for TPG declined to
Treasury Wine's corporate affairs director, Roger Sharp,
told Reuters that Clarke "is confident that the strategic
roadmap laid out by the company is the right one and will be
strongly supported by whoever owns the company."
ON THE CHOPPING BOARD
Bankers said some underperforming brands as well as some
vineyards in Australia would likely be sold off but the company
would retain higher margin labels. Some of its better known
brands include Beringer, Lindemans and Wolf Blass.
KKR and Rhone would also be looking to capitalise on
opportunities to sell more wine in China, where consumption has
climbed 136 percent in the past five years and where growth in
e-commerce is expected to continue to boost demand from second
and third-tier cities.
VATS Liquor Chain Store Management Co, China's biggest
distributor of alcoholic beverages, in which KKR has an
undisclosed stake, would help manage sales, the people said.
Clarke, who took over on March 31, has embarked on
restructuring that includes a A$260 million impairment charge on
the value of its wine brands. The company will also separate out
management of its lower-end brands from its more prestigious
ones in Australia as it has begun to do in the United States.
A food and beverage industry veteran of more than 20 years
who led a significant turnaround at Britain's Premier Foods Plc
, Clarke also advised KKR last year on a $2.5 billion bid
for GlaxoSmithKline's Lucozade and Ribena soft drinks.
But he has so far disappointed analysts who have long been
calling for the company to spin off either Penfolds or Penfolds
and other upmarket labels into a separate company.
Morningstar analyst Daniel Mueller said spinning off the
better part of the portfolio - which accounts for around 15
percent of Treasury Wine's sales - could leave the rest of the
listed business without sufficient support. But he added that
private equity would have more leeway.
"KKR...might have potential buyers lined up for all the
different pieces. Its U.S. business has struggled for a number
of years and there may be a logical buyer," he said.
"There are so many ways it could be chopped up into private
(Reporting by Denny Thomas and Stephen Aldred. Additional
reporting by Byron Kaye in Sydney; Editing by Edwina Gibbs)