Pernod Ricard wins race to buy Absolut
At the end of March Pernod Ricard, the world’s second-largest drinks company, agreed to buy Vin & Sprit from Sweden’s government for EUR 5.28 billion to gain the Absolut vodka brand and take on Diageo’s Smirnoff vodka in the U.S.
In an auction Pernod Ricard beat rivals including Fortune Brands from the U.S., Bermuda-based Bacardi and the billionaire Wallenberg family with its bid. Earlier in February Diageo had exited the auction after agreeing to form a joint venture with the Dutch producer of Ketel One vodka.
The Swedish government had put the 91-year-old company Vin & Sprit up for sale to reduce the state’s involvement in the economy and pay debt.
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| The Absolut distillery in Ǻhus. Photo: Vin & Sprit |
Many analysts consider the price high. At maximum, they had expected Vin & Sprit to fetch EUR 5 billion. In addition to the purchase price, Pernod Ricard is assuming debt of EUR 346 million, taking the total cost of the transaction to EUR 5.63 billion, spokeswoman Florence Taron said. Fortune Brands said in a statement it “didn’t see the appropriate return for our shareholders at the announced price.” As a consequence, Pernod Ricard’s share price took a beating and dropped 5.5 percent on 31 March, the day the deal was announced. Since the beginning of the year Pernod Ricard’s share has lost almost 20 percent in value.
Nevertheless, Pernod Ricard’s president Patrick Ricard is upbeat. This was an opportunity not to be missed, he was quoted as saying. The purchase will make the producer of Martell, Chivas, Ballantine’s, and Glenlivet the second-biggest spirits seller in the U.S., which also happens to be the world’s largest vodka market by value. The U.S. market is Absolut’s major market. Half of its annual volume is sold there. Absolut controls about 9 percent of the U.S. vodka market by volume, more than any brand except Smirnoff. Although Smirnoff may be the bigger brand, Absolut has been growing faster and also enjoys a higher retail price.
When it comes to volume, Absolut is the world’s fourth largest spirits brand behind Smirnoff, Bacardi and Johnnie Walker, selling 11 million cases of 9 litres annually.
The deal brings Pernod Ricard closer to Diageo at least in terms of volume sold. Diageo sells 93 million cases, Pernod Ricard, including Absolut, will sell 91 million cases.
Pernod Ricard said it’s paying 20.8 times EBITDA for Vin & Sprit, prior to any savings. In 2005 the company paid 13 times operating profit, or USD 13 billion, for Allied Domecq.
The acquisition is being fully funded by debt and will almost double the company’s net borrowings to EUR12 billion, Pernod said.
The deal impacts Pernod Ricard’s distribution contract with Stolichnaya vodka outside Russia. The contract will end once the brand’s owner, SPI Group, has found a replacement. SPI may even decide to sell Stolichnaya after the partnership is concluded, news agency reports claim.
Pernod Ricard forecasts as much as EUR 150 million of pre-tax cost savings per year from the transaction, which it aims to close in the middle of 2008. The purchase doesn’t include Vin & Sprit’s 10 percent stake in Fortune Brands’ Beam Global Spirits & Wine Inc. Absolut is distributed in the U.S. by Future Brands, a joint venture between Fortune Brands and Vin & Sprit. Pernod Ricard said that the U.S. agreement between Vin & Sprit and Fortune Brands is to run until the beginning of 2012.
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Absolut accounts for about 40 percent of Vin & Sprit’s sales by volume. The rest comes from alcoholic beverages including Plymouth Gin, which must be distilled in the English city of the same name, and Cruzan rum, which has been made since 1760 on the Caribbean island of St. Croix. The company also owns the Level, Fris and Luksusowa vodka brands. Pernod said it plans to sell Plymouth Gin and some of Vin & Sprit’s smaller brands.
At Vin & Sprit no job cuts have been announced yet. Bengt Baron will remain Chief Executive Officer of V&S after the takeover and the company’s headquarters will stay in Stockholm.
 | He must like flavoured vodkas. |
