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Wednesday, April 9, 2014

Big changes coming to Treasury Wine Estates?

Treasury is one of those "wine corporations" that own many wine brands. They once were part of Fosters of Australia until being spun off by the parent company largely because of poor performance by the wine division.

Several months ago Treasury fired their CEO for dumping an oversupply of wine and taking a write-off.  Dumping over $30 million in wine tells of other problems within the company.

They have a new CEO promising "structural changes." In corporate-speak that means wineries will be sold and jobs will be lost. Michael Clarke, the new leader, has held top jobs in the food industry, but has no wine experience. Why hire someone with no wine experience? So they can come in with no emotional ties to anything in Treasury's past and start cutting. Clarke has also been quoted as saying, more bluntly, "We have too many brands."

You have to worry about Treasury's upper management's link to their products when their corporate byline reads, "One foot in the vineyard, one foot in the boardroom."  Really? Treasury's leadership calls the U.S. market "challenging," but "a real opportunity" meaning they aren't doing as well as expected. Over the last few years they've put an American office in Napa, but as yet aren't seeing results.

Treasury is based in Australia and the local financial analysts say they should sell off their American holdings. Treasury owns three dozen wine brands in Australia & New Zealand. They have several wine labels in the U.S., both large and small, including Beringer, Chateau St. Jean, Etude, Meridian, Souverain, St. Clement, and Stags' Leap.

So what will the new CEO do to restore investors' confidence? Historically stock prices rise when people get laid off as it shows the company is serious about saving money. With multiple labels in several countries an easier way is to sell off holdings or entire regions. As they haven't cracked the U.S. market very well some of the U.S. wineries will likely be sold. Or the entire U.S. operation could be spun off just as Fosters did with Treasury a few years ago. If they try to sell a couple individual wineries you have to wonder who are potential buyers? Maybe someone like Constellation Brands or Diageo buys Beringer, maybe the Chinese do. Another possibility is Pepsi or Coke as the soft drink business is, er, softening although Coca-Cola tried the wine business years ago and got out. Fosters paid $1.5 billion for Beringer Vineyards 13 years ago.

This all breaks in the news at the same time as Constellation Brands, a large beer, wine, and spirits company out of New York, has just announced huge profit gains, largely from their beer holdings.