The more I look at the news around Treasury Wine Estates, the more I am grateful that I sold 90% of my shares last year, leaving only sufficient to get me an invitation to the Annual General Meeting.
The announcement in mid-February that TWE was not going to pay a dividend this half year was not exactly surprising, given that the share price had been continuing to travel south and there has been no good news amongst any of the company announcements over the past year.
This morning, one of my friends sent me a link to the latest cheery news reports – that the Plato fund management group has not only been betting on the share price falling even further, but that they believe that there is a strong risk that the company could go bankrupt.
Well… in just under 18 months the falling share price has caused about $8 billion to be wiped from the company’s value.
A lot of the blame for the fall in the share price and the poor financial situation is due to the decision some 30 months ago to buy Daou vineyards in the USA. I remember that TWE did a rights issue at the time – a rights issue in which I did not bother participating.
Thinking about it, I have some 26 years of history as an investor in TWE and its various predecessor companies, such as Fosters Group and Southcorp to give me context.
Southcorp made a fatal mistake in consenting to what became a reverse takeover when it merged with Rosemount circa 2000. Not only did the fall out from that merger seriously damage the bottom line, but it caused the rise of Casella Wines’ Yellowtail brand at Southcorp’s expense. Nor was the Rosemount brand maintained (it had been the second biggest selling domestic wine brand in 1999) – it is now just a footnote in the TWE annual report each year rather than a surviving brand.
Then… despite the reservations held by the CEO of Fosters, the Fosters Board decided to take over Southcorp shortly afterwards, when the Oatley family (former owners of Rosemount) offered to sell their shares in Southcorp to Fosters. That decision did not exactly benefit the Fosters bottom line.
The moral of those stories is that bolting on additional large wine businesses to an existing wine conglomerate is not necessarily going to be a successful transaction. Indeed, looking at the many mergers and demergers which occur across many businesses in all sectors (the 1999 merger of BHP and Billiton, and the various capital restructures of Westfield come to mind) cause me to think that merger and acquisition lawyers are the main beneficiaries of such boardroom decisions. Call me cynical.
The TWE AGM is due to occur in October. Last year, I was very disappointed with the quality of the catering and the quantity of wine available, particularly in comparison to the 2024 AGM. I will go along again, but I will anticipate the explanations from the Board almost as much as the post meeting refreshments. And I will be bringing my party posse.
Lost For Words! 