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Penfolds owner Treasury Wine Estates is upping its bets on the global growth potential of the luxury wine market, agreeing to fork out up to $1.6 billion to buy high-end Californian winemaker Daou Vineyards.

The ASX-listed drinks business revealed to investors on Tuesday morning that it had entered a deal to buy Daou, a business founded in 2007 by brothers Georges and Daniel Daou, in a deal worth $US900 million ($1.4 billion), plus a possible additional payment of $US100 million if certain growth thresholds are met, bringing the total price tag to $US1 billion ($1.57 billion).

Treasury Wine Estates chief executive Tim Ford said the group continued to see long-term growth opportunities in the luxury wine segment. Credit: Eamon Gallagher

The deal will be funded through a combination of an $825 million equity raising, a $157 million placement of shares to the owners of Daou, and taking on $311 million of debt, the Melbourne-based company said in a statement to the Australian sharemarket on Tuesday morning.

Daou is based in Paso Robles, California, and was founded by the Daous, which the Californian winemaker describes on its website as “brothers, best friends, and visionaries”.

The group makes wines across five product tiers ranging from $US20 and $US500 a bottle, and owns a tasting room venue, four luxury vineyards and four wineries.

Treasury chief executive Tim Ford said the purchase would help the Australian company build on its focus on the luxury wine market, which presents opportunities globally.

“We continue to see strong long-term growth trends for luxury wine in [Treasury’s] key global markets, with a significant value creation opportunity leveraging and building on the strengths today of TWE, Penfolds, Treasury Americas and DAOU to create a multi-brand global luxury wine business of scale,” he said in the company’s statement to the ASX.

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