Treasury Wine Estates: Corporate Action—Recommend Taking Up Entitlements

We maintain our AUD 11.50 fair value estimate for shares in no-moat Treasury Wine Estates following the acquisition of U.S. luxury winemaker Daou Vineyards. The transaction is in line with Treasury's strategy to focus on higher-margin, higher-price, premium, and luxury wines in the Americas. Including transaction costs, the AUD 1.5 billion price tag will be funded by AUD 157 million placement of new shares to the existing owners of Daou, an AUD 825 million entitlement offer, and AUD 490 million in debt. The deal, expected to complete by end of calendar 2023, is broadly neutral to our fair value estimate after accounting for the dilutive impact of the equity raise.