Penfolds owner Treasury Wine Estates has bolstered its higher-end wine portfolio in the United States with the acquisition of Frank Family Vineyards in the Napa Valley in California for $US315 million ($434 million).
Frank Family Vineyards was established in 1992 by Rich Frank and sells wines in price brackets from $US38 to $US225 per bottle across grape varieties including chardonnay, cabernet sauvignon, pinot noir and sparkling wine. The flagship wine is a luxury chardonnay.
Treasury Wines chief executive Tim Ford said the acquisition would sit well with the company’s existing brands in the US and was a high margin business.
“This is a rare opportunity to acquire a luxury brand and portfolio of wines that consumers enjoy and connect with,” Mr Ford said.
He said the business had a proven track record of success and had increased revenues every year since 2009. Treasury Wines expected to unlock more potential as it brings the business into its own operations and pulls out $US5 million in cost synergies.
Treasury Wine Estates has been steadily exiting from lower-priced commercial wine operations in the US and its strategy is to shift further into the premium end of the wine market in that country, with its previously lucrative China business having been decimated by punishing tariffs imposed by the Chinese government.
It is the biggest acquisition in the United States in six years for Treasury Wines, which acquired most of alcoholic beverages giant Diageo’s wine division for $754 million, in late 2015, when previous chief executive Mike Clarke was at the helm.
Frank Family Vineyards produced net sales revenue of $US54 million in 2020-21 and earnings before interest tax and the SGARA agricultural accounting standard of $US21 million.
It produced a profit margin of 38 per cent, well above the existing margins of the Treasury Americas business.
The assets being acquired include the Frank Family Tasting Room in Calistoga, the Benjamin Vineyard in Rutherford, the S&J Vineyard in Capell Valley, and the portfolio of luxury wines.
Under the deal, Rich and Leslie Frank will maintain the ownership of Winston Hill Vineyard in Rutherford and the Lewis Vineyard in Napa, Carneros. Both vineyards will continue to source grapes for the Frank Family reserve tier of wines.
Treasury Wine Estates expects the deal to be earnings per share accretive from the date of settlement, which is expected next month.
The company said it will lift margins in the Treasury Americas business, and based on pro-forma 2020-21 numbers, will improve earnings margins by 170 basis points.
Treasury Wines expects to strip out $US5 million in cost synergies, mainly from supply chain efficiencies.