Investors clearly liked what they saw during Treasury Wine Estates Ltd (ASX: TWE) trading halt last week, as a frenzy of buying pushed Treasury shares to their highest point ever this morning.
During its trading halt – now lifted – Treasury announced a capital raising to fund the acquisition of international beverage giant Diageo's wine portfolio, which Diageo was divesting.
In return for A$754m, Treasury will acquire Diageo's UK and US wine portfolio, which is expected to result in a double-digit increase in earnings per share in 2017, as well as several substantial cost synergies over the next few years.
The acquisition adds substantially to Treasury's 'masstige' (mass-market prestige) and prestige wine portfolio and revenues. It will also support management's stated aim of becoming a global wine marketing company (rather than an agriculture-centred vintner). Accordingly the acquisition does not include a significant amount of vineyard assets.
So, should I buy Treasury Wine shares?
Well, that's another question. While I like what the company is doing, it still looks expensive, especially in light of today's rise and the availability of other growth options like Retail Food Group Limited (ASX: RFG).
Existing shareholders should continue to hold, but buyers should think carefully before diving into Treasury Wines at today's prices.
