Treasury Wine Estates (TWE) has sold several California assets to rival Gallo, including the Asti winery, the Souverain brand and stocks, and vineyards in Sonoma County.

The deal also sees TWE entering into a long-term leaseback agreement on part of the vineyard, which has traditionally provided the company with ‘luxury’ fruit.

The move is part of continuing efforts by TWE, owner of Penfolds, Wolf Blass and Beringer, to cut costs and reduce production capacity in the face of falling profits.

The company is also looking to optimise its supply chain and separate production of its ‘luxury’ and ‘masstige’ wines from its lower-priced commercial bottlings.

At the end of March, it announced a raft of changes in Australia and California, including the closure of the Asti facility, as well as selling off the recently closed Ryecroft winery in McLaren Vale, T’Gallant in Mornington Peninsula and the Bailey’s winery in Glenrowan.

TWE said the sale to Gallo would lead to it recording a loss on disposal of US$7.5m, before tax, in its full-year accounts to 30 June 2015. No further financial details were revealed.

The company recorded a 60% fall in net profits in the six months to 31 December, with chief executive Michael Clarke saying in March that TWE was in the midst of a ‘re-set year’.

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