US private equity firm KKR has upped its bid for Treasury Wine Estates, but the battle for the owner of Penfolds wines may be just beginning.
KKR has lifted its bid for Treasury from $4.70 to $5.20 a share, valuing the company behind some of Australia's most famous wines at $3.38 billion.
The offer is about 40 per cent above what the troubled winemaker was trading at in May, prior to its initial takeover bid.
It sent Treasury shares soaring, adding 20 cents, or four per cent, to $5.15.
Treasury's board, which rebuffed the earlier offer outright, is now in talks to open its books to KKR and its partner Rhone Capital.
But the winemaker is still talking up its own efforts to turn itself around after several difficult years.
In a statement on Monday, Treasury said it would assess the value of KKR's offer against the potential rewards of its own strategy to boost sales and cut costs.
The company and its recently appointed chief executive Michael Clarke have been looking to improve the performance of its brands after being forced to issue a huge $160 million writedown in 2013 due to an oversupply in the US that saw $33 million worth of wine destroyed.
Treasury owns many of Australia's best know brands, including Penfolds, Wolf Blass and Lindeman's along with the Beringer and Chateau St Jean labels in the US.
Morningstar analyst Daniel Mueller said KKR's offer price was a significant premium to Treasury's fair value, based on its recent performance and outlook.
"Our fair value estimate is well south of that price, but there are those that have a view as to what the takeover premium should be and whether they are offering enough of a premium will be a question for shareholders," he said.
But IG market strategist Evan Lucas said the company's fair value was closer to $5.50 per share, including a takeover premium, and would be unlikely to win approval from the board and shareholders in its present form.
"I think it's going to be a bit of a drawn-out process, I still don't think the board wants to say `yes'," he said.
He said there was also the prospect of other takeover offers emerging for Treasury, which he says is a prime target for private equity after years of mismanagement.
"There is no doubt that KKR is very interested but it's also know that they are not the only ones out there," he said.
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