The Treasury Wine Estates Ltd (ASX: TWE) share price is racing higher on Tuesday morning.
At the time of writing, the wine giant's shares are up 4% to $11.93.
Image source: Getty Images
Why is the Treasury Wine share price racing higher?
Investors have been buying the company's shares today for a couple of reasons.
One is news that China is launching new stimulus, which is boosting stocks with exposure to the country.
Another is the well-timed release of a big announcement relating to its operations in China.
According to the release, Treasury Wine has entered into arrangements to acquire 75% of Ningxia Stone & Moon Winery (Stone and Moon) for a consideration of RMB 130 million (approximately A$27.5 million).
The company notes that this winery is located in the highly regarded wine production region of Ningxia in north-western China.
Stone & Moon's asset base includes 43-hectares of planted luxury vineyards, as well as a modern winery with capacity for future expansion and a cellar door.
Why make this acquisition?
Management believes that the acquisition of Stone & Moon is consistent with the company's strategy of investing in luxury vineyard and production assets to support the growth of its luxury wine portfolio.
It also expects the transaction to complement its existing third-party sourcing arrangements to deliver an efficient and scalable production model for the Penfolds' China country of origin portfolio.
Speaking of which, Treasury Wine revealed that it currently intends to evolve the Stone & Moon site in the future to create a local brand home for Penfolds, building on its strength as one of the leading luxury wine brands in China.
The acquisition is expected to complete in the second half of next year, subject to the satisfaction of customary closing conditions. The transaction terms include an option for Treasury Wine to acquire the remaining 25% ownership after five years.
'A significant step forward'
Treasury Wine's chief executive officer, Tim Ford, was pleased with the deal and sees it as a big step forward in the lucrative China market. He said:
Today's announcement is a significant step forward for TWE, and Penfolds, in China. Through this acquisition, we will further strengthen our commitment to, and investment in, the China wine industry, where Penfolds continues to be a highly admired and sought after brand.
The successful evolution of Penfolds to becoming a multi-country of origin brand has been a significant execution highlight in recent years, with the China sourced portfolio having resonated particularly strongly with Chinese consumers, and we look forward to continuing that momentum through this important long-term investment.
The Treasury Wine share price is up 11% this year.
