There is speculation that Treasury Wine Estates Ltd (ASX: TWE) might do a demerger. Would shares rise? It’s up 0.5% right now.
What’s going on?
Over the weekend, The Australian reported that TWE is investigating a demerger of its global operations into three separate businesses.
The company has responded to this speculation.
TWE’s reaction
The company reminded investors that at its annual general meeting (AGM) on 5 November 2020, it reiterated that it had formally paused work on a potential demerger of its Penfolds brand, and further that it is not currently considering a demerger of any brands or businesses within its portfolio.
TWE also announced on 5 November 2020 that it’s assessing internal operating models to deliver long term value through a separate focus across its brand portfolios. The company confirmed those assessments are ongoing. The board said that the company has no further announcements to make at this stage.
Would a demerger make sense?
TWE previously thought that a demerger could be good for the respective brands, that’s why it was considering a demerger previously.
Sometimes a business can be better off as two separate entities because it means that each segment has a CEO that’s completely focused on growing that business. A recent example of this could be Graincorp Ltd (ASX: GNC) and United Malt Group Ltd (ASX: UMG).
I’m no expert at demergers or what’s the best operating model for a wine business. But considering what’s going on with China and the wine industry,
For me, I think the company needs to be trying to sort out the best way to sort out its issues relating to China. It somehow needs to be able to get wine selling in China back to normal. I don’t know what that would take – it might need Australian government action to get relations back to normal.
Time to buy Treasury Wine Estates (TWE) shares?
TWE is an interesting one. It’s down heavily from where it was during the last few months of 2020. There’s nothing to say that the earnings or share price will get back to where it was then.
If relations with China goes back to normal, then TWE could be a clear buy. Or, if TWE can find other buyers for its wine then it could be a buy too.
But it’s hard to say when, or if, this will happen. There are other ASX growth shares I’d rather buy for a Chinese consumer recovery such as A2 Milk Company Ltd (ASX: A2M) or even Bubs Australia Ltd (ASX: BUB).
