Treasury Wine Estates (TWE) has confirmed it will spend $US600 million ($A820m) to acquire Diageo’s US and UK wine operations.
The deal involves a cash payment of $US552m ($A754m) and the assumption of capitalised leases of $US48m ($A66m).
TWE, which already owns several US and European wine brands, said the transaction is expected to deliver “low double digit percent EPS accretion in the first full fiscal year following the acquisition (FY17) including phased synergies”.
The company said total annual cash synergies of at least $US25million ($A34million) were expected before FY20.
Euromonitor International's senior alcoholic drinks analyst Jeremy Cunnington said that Diageo fell out of love with wine following the great recession of 2008-09 when it saw that the category could not offer the returns it was looking for.
“The fact there is a sale now may in part be due to some pressure to sell, but it is more likely there was someone willing or able to offer a suitable price.”
“The main benefit for the buyer, Treasury Wine Estates, will be Diageo’s US wine assets with the premium and above brands such as Sterling Vineyards, which will greatly improve Treasury Wine Estates' generally low value US portfolio.”
TWE has also announced an improved financial outlook, thanks to an acceleration in its standalone sales and earnings performance in the first quarter of FY16 and expectations of continued momentum in the remainder of the year.
