The Treasury Wine Estates Ltd (ASX: TWE) share price jumped 6.4% yesterday after news of a rumoured takeover offer.
What happened?
The media outlet This is Money reported yesterday that French drinks giant Pernod Ricard is thinking about making a £5 billion bid for TWE, the owner of Penfolds and many other wine brands.
Pernod Ricard could be interested in buying in a portion of TWE, or perhaps the entire business.
The news piece reported that Treasury Wine Estates has received a bid of A$15.67 per share, according to sources in London. However, the offer could have come from either Pernod Ricard or perhaps a US private equity firm.
One source, according to This is Money, said that Treasury Wine Estates could have already knocked back an offer from Pernod Ricard and the French business could decide to buy a 30% stake of the ASX company instead.
Whilst This is Money tried to get a comment, both Treasury Wine Estates and Pernod Ricard declined to say anything.
What would this mean for the TWE share price?
Well, an offer of A$15.67 per share is currently still a share price premium of around 43%, even after yesterday’s rise.
However, that offer is still lower than where the wine business was trading at the end of 2019. Would TWE shareholders be happy with accepting a price that still represents a fairly cheap number compared to the last two or three years?
Treasury Wine Estates management are confident about the future, even with all of the disruption coming from the Chinese tariffs.
If I owned some TWE shares, I’d be very happy with this speculation because it’s driving up the TWE share price. Until we hear about official announcements from the company, this is all just talk at the moment.
Australian wine has a very good reputation around the world and TWE is a very good way to get exposure to that theme. It’s very difficult with everything that’s going on with China. However, the market is pricing TWE as though the China relationship may never improve. What if relations improve in six months or twelve months from now? That would be a big boost to future demand and profit for the wine business. But things could stay this frosty for a lot longer too.
Thankfully, TWE is managing to find other buyers for its wine whilst there’s little demand coming from China. For example, the UK and other Asian countries are apparently buying up a good amount of the inventory.
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