TWE eyes demerger of Penfolds

15 April, 2020 by Andy Young

Treasury Wine Estates (TWE) is has said it is considering a demerger of the Penfolds brands after a detailed review of the company’s portfolio.

The review also included an assessment of both the optimal strategy and structure of the business. The company said the review builds on its internal operating model, which is focused on premiumisation and accelerating the separate focus for the luxury versus commercial portfolios, globally.

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If the demerger went ahead it would allow one-team to focus on driving Penfolds’ multi-country of origin portfolio through Australian, French and US sourced propositions. It would also mean a second team would be able to focus on accelerating the shift towards luxury in the remaining TWE business and also reducing and “right-sizing” the commercial portfolio.

Michael Clarke, Chief Executive Officer of TWE said: “Penfolds accounts for approximately 10 per cent 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.”

Paul Rayner, Chairman of TWE added: “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.”

The company is now undertaking a detailed evaluation of the costs and benefits to shareholders, and any decision to demerge would also require final Board, shareholder and regulatory approvals and the receipt of third party approvals on satisfactory terms.

Subject to the stabilisation of market volatility and the global COVID-19 pandemic, if a decision is made to proceed and is approved by shareholders, the potential demerger is expected to be completed by the end of calendar year 2021.

If completed, it is anticipated that the potential demerger would create a new top ASX 50-100 company listed on the Australian Securities Exchange for Penfolds and an ASX 100-150 company for New TWE.

TWE has also successfully achieved registration of its BEN FU (奔富) trade mark in China, the Chinese transliteration for its iconic Penfolds wine brand.

This means TWE is now the owner of the earliest trade mark registrations for Ben Fu in relation to wine in both China and Australia, dating back to 9 February 2011 and 1 April 2016 respectively.

The announcement comes after almost 10 years of litigation and enforcement by TWE through the Chinese courts and authorities to claim its ownership of the Ben Fu trade mark after it was hijacked by a trade mark squatter.

TWE Managing Director North Asia, Tom King described this as a significant milestone for the company as it cements TWE as the legitimate registered trade mark owner of the Ben Fu brand, which is one of the most recognised wine brands in China.

“Protecting the integrity of our historic wine brands against trade mark piracy and misappropriation has always been a priority and we have never wavered in our commitment to this endeavour,” King said.

“We are delighted with the outcome, as it gives us even greater ability to enforce the protection of our brand in line with our zero-tolerance approach to IP infringements, including counterfeit and copycat brands.”