Fortune Brands gets a USD 230 million handshake

Fortune Brands will receive USD 230 million in compensation for an early termination of its U.S. joint venture with Absolut under an agreement signed with Absolut’s new owner, France’s drinks group Pernod Ricard.

At the end of August 2008 Pernod Ricard, the number two drinks group worldwide, announced that it had come to an agreement with Fortune Brands for an early termination of the distribution of Vin & Sprit brands in the United States. As of 1 October 2008, Pernod Ricard will distribute the Vin & Sprit portfolio, which includes the Absolut vodka brand. Earlier this year Pernod Ricard acquired Vin & Sprit following its privatisation by the Swedish government.

Originally, Absolut was distributed in the U.S. by a joint venture, Future Brands, which had been set up between Vin & Sprit and Fortune Brands. Fortune Brands, a USD 6.2 billion spirits to household appliances group, owns brands such as Jim Beam and Maker’s Mark bourbon, Sauza tequila, Canadian Club whisky, Courvoisier cognac, Teacher’s and Laphroaig Scotch. Last year it sold its wine portfolio to Constellation Brands for USD 885 million.

The Future Brands joint venture, in which Vin & Sprit had a 49 percent stake, had the rights to the U.S. distribution until the end of February 2012. As Pernod Ricard had no intention of continuing this joint venture, having its own distribution in place in the U.S., the new partners agreed to an early termination of this agreement on October 1st 2008 with Pernod Ricard paying to Fortune Brands a compensation of USD 230 million (EUR 156 million). Together with the termination of the distribution, Vin & Sprit will also stop being a shareholder in Future Brands.

The savings generated by stopping the payments of commissions to Future Brands, the quicker than anticipated implementation of cost synergies and the positive impact of an immediate combination of brand portfolios in the U.S., hopes Pernod Ricard, will more than offset the costs of exiting this distribution agreement.

Separately, and as part of the announced disposal plan, Pernod Ricard will sell the Cruzan rum brand and related assets to Fortune Brands for an amount of USD 100 million (EUR 68 million). Pernod Ricard is glad to see the brand go. Cruzan was acquired by Vin & Sprit in 2005 and has since then grown quickly, reaching more than 750,000 9L cases in 2007 and a turnover of USD 50 million. However, even after three years of solid growth the brand still was not breaking even after advertising and promotion costs.

Absolut vodka is now one of Pernod Ricard’s 15 key brands. Following its acquisition, Pernod Ricard’s position in the U.S., the largest spirits market worldwide, increases from number four to number two with a market share of close to 14 percent. Photo: Pernod Ricard