As many readers will be aware, two exciting takeover offers from Kohlberg Kravis Roberts & Co and an unnamed private company earlier this year saw Treasury Wine Estates Ltd's (ASX: TWE) share price shoot up from $3.50 to around $5.20, which was the price offered for the company.
After much deliberation, periods of due diligence and consultation with major shareholders, the management of Treasury Wines decided that the offer of $5.20 per share undervalued the company.
Given that bidders were apparently unwilling to meet a price and terms that management thought appropriate, all discussions with potential buyers have been terminated.
The announcement yesterday wiped over $300 million off Treasury's market value, with the shares trading as low as $4.13 before closing at $4.50.
Shareholders should expect the slide to continue over coming weeks as Treasury returns to a more reasonable value – its price to earnings multiple of 26 is still exorbitant given the company's slim growth prospects and poor performance record.
While on one hand I am glad to see Treasury Wines remain in Australia and publicly traded, I think that management has made a grievous error in refusing the already generous offer of $5.20.
In my opinion the company has limited growth prospects and a record of underperforming the ASX means the offer should have been accepted.
While I like Treasury Wines as a company, I would not consider a purchase until I saw it back around 52-week lows of $3.50.
Future shrewd business decisions will also be required in order to convince shareholders that management is capable of delivering a value of greater than $5.20 over the next couple of years.
Personally speaking I'm highly sceptical, and would avoid the company for the time being.
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With an outstanding seven-year record of revenue and dividend growth – and more to come thanks to the company's ambitious expansion plans – readers need to see why this company is not just a Top Stock pick, but could in fact become the best company in your portfolio full stop.
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