DIAGEO PLC SYDNEY (Reuters) - Shares in Australia's Treasury Wine Estates Ltd (>> Treasury Wine Estates Ltd) jumped to a record on Monday as investors cheered its $552 million (358 million pounds) purchase of most of Diageo Plc's (>> Diageo plc) U.S. and British wine operations, along with plans to issue shares to fund the offer.
The shares in Treasury, the world's biggest standalone winemaker, surged 13 percent in a flat overall market <.AXJO> as they resumed trading after a halt requested by the company last week. Treasury said on Monday it expects a A$486 million rights issue to finance the deal will be successful.
At 0206 GMT, the shares were trading at A$7.30, still up 13 percent.
The investor response cements a turnaround in sentiment towards the home of the Penfolds wine label as Chief Executive Officer Michael Clarke reshapes its growth strategy, buying upscale wine brands from London-listed Diageo. The shares have been among Sydney's best performers so far in 2015, up over 50 percent while the bourse's benchmark has slid 2.4 percent.
Under different management, Treasury's earlier attempts to chase U.S. growth by selling more lower-grade product failed, resulting in thousands of cases being destroyed with massive impairment charges. That triggered heavy losses, a 40 percent decline in the company's stock and the management change that brought Clarke in.
With shares at a low, just over a year ago, Clarke rebuffed two takeover approaches for Treasury by private equity firms for A$5.25 per share.
Treasury now says it expects three-fourths of profits from the acquired Diageo business to come from luxury and "mass prestige" labels by fiscal 2015, boosting the proportion of earnings it gets from more profitable high-end products.
Analysts said the Diageo deal was cheap and would be immediately profitable, but questioned Clarke's decision to focus on the U.S. market given his predecessors' failure there and the fact that Asia was the company's biggest growth driver in fiscal 2015.
In August, Treasury posted a surprise earnings boost led by China's thirst for luxury wines and prompting its CEO to predict that the Asia unit will be its biggest by 2017.
Treasury's "highly accretive acquisition of Diageo's wine assets makes clear financial sense, but the longer-term rationale is less clear", Morgan Stanley analysts said in a research note following news of the Diageo sale last week.
(Reporting by Byron Kaye and Swati Pandey; Editing by Stephen Coates and Kenneth Maxwell)
