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"Based on comments it has made on recent briefings, TWE is looking to exit up to 6m cases of production capacity (~75% of total capability) in the US. With inventory and assets included, we think TWE could realise around $400m from divesting such assets. "TWE’s US business would then be a business driven by luxury/masstige growth brands capable of generating around $200m EBIT (25-30% EBIT/sales margin)...subject to less risk."

More information about the analysis upon which this article is based, may be obtained by contacting John Heflebower, Merrill Lynch Wealth Management, Napa.

Low-end brand EBIT = zero to negative

[T]his low end wine (such as Beringer Main and Vine and BV Coastal) generated around A$250m of revenue (~US2/bottle) in FY19, at probably 0 to negative EBIT contribution. "Based on the price Constellation looks to be selling around 22m cases of low end wines to Gallo (around A$1.5bn), we think TWE could realise around $400m for its assets (which would include in our view between $100-200m of inventory, some wineries and other production facilities). Such assets albeit unprofitable for TWE (due its subscale) could be profitable for another wine producer in our view."