DID CONSTELLATION OVERPAY FOR SVEDKA?
Constellation is bringing home a Swedish premium vodka, but it’s not what you’re thinking. No my friends, it looks like Constellation might be out of the running for V&S-owned Absolut, and has instead opted to buy the ever-so-hot Svedka vodka.
The world’s largest wine company is set to purchase Svedka vodka from Guillaume Cuvelier and Belgian-based Alcofinance for $384 million. The acquisition includes the brand’s U.S. marketer, Spirits Marque One, and is expected to close in March.
Svedka vodka is known for it’s somewhat risqué marketing, which has certainly helped bolster its success in the United States. Launched in 1998, Svedka saw sales leap 60% year-on-year in 2006 to around 1.1 million cases, the majority of which were sold in the U.S. In 2005, the brand was the fastest-growing imported vodka in the U.S., with shipments up 43% from the previous year. Svedka is currently the fifth-largest imported vodka in the U.S. and nearing the number-ten position among all U.S. vodkas (approximately number 12 or 13).
Constellation is clearly banking on Svedka’s brand name power to give the company’s spirits business a little oomph. Although it’s one of the largest U.S. spirits marketers with a volume share of more than 9%, sales of Constellation’s premium spirits have stayed relatively flat. However, Svedka might be the lucky charm that Constellation is seeking.
Let’s take a look at what the analysts have to say:
Is the expensive purchase going to pay off? Most analysts say yes, but it’s still a somewhat risky venture.
Bill Pecoriello of Morgan Stanley:
“We believe that the deal that Constellation made to acquire the Svedka vodka brand makes sense strategically (growth prospects for vodka, need to move its spirits business up the price curve and need to diversify), but the strategic move comes at a sizable price -EPS dilution for 3 years.”
Mark Swartzberg of Stifel Nicolaus:
“On its face, three years of EPS dilution is not value creation, but the Svedka brand is on a strong, multi-year trend of growth, and Constellation emphasized its intention to plow profits back into the brand for the sake of future growth. This is not a foreign exercise for Constellation, so our preliminary expectation is for long-term value creation.”
Christine Farkas of Merrill Lynch:
“While we think investors may be disappointed with the related earnings dilution over 3 years, we also believe that this marks an important strategic deal for STZ aiming to trade up in spirits, ultimately evolving into a more meaningful cross-category alcoholic beverage player over the longer term.”
What about the advertising? It seems a little over-the-top for stuffy corporate America (sorry guys), and most analysts agree.
Tim Ramey of D.A. Davidson Research on Svedka’s marketing:
“This appears to be a party product targeted to the Paris Hilton crowd. It appears to be what very hip 20-somethings in South Beach drink just before they climb out of a limousine, sans underwear. Our worry is that in 2009, when we have forgotten who Paris Hilton is (or why we ever cared), we will still be paying off the dilution from this deal.”
“Ironically, the brand is priced at the $12-$13 level so we see the product being positioned at a significant discount to the Abolut’s of the world at $16-$18, and not in the same league as Ketel One or Grey Goose.”
Mark Swartzberg of Stifel Nicolaus:
“Svedka advertising, which uses a “femme-bot” and positions her in the “future of adult entertainment” is described by the company as “tongue-in-cheek”. We consider it soft-porn and over the line.”
And finally, how will this acquisition affect Constellation’s interest in Absolut?
Christine Farkas of Merrill Lynch:
“Finally, this imported vodka acquisition may reduce the probability of a bid for Absolut Vodka down the road, but also suggests dilutive deals are not out of the question. In our view, future deals to more likely consist of small to mid-sized bolt on acquisitions versus multi-billion deals.”
With that said, Cuvelier, the founder of Spirits Marque One and creator of Svedka, will lead the New York-based brand management team. The marketing and sales team will retain their autonomy with the Svedka_Grl campaign (see second image) continuing to promote the brand.
Svedka includes four flavor: Citron, Clementine, Raspberry and Vanilla, all of which retail for around $15 per 750-ml.
The world’s largest wine company is set to purchase Svedka vodka from Guillaume Cuvelier and Belgian-based Alcofinance for $384 million. The acquisition includes the brand’s U.S. marketer, Spirits Marque One, and is expected to close in March.
Svedka vodka is known for it’s somewhat risqué marketing, which has certainly helped bolster its success in the United States. Launched in 1998, Svedka saw sales leap 60% year-on-year in 2006 to around 1.1 million cases, the majority of which were sold in the U.S. In 2005, the brand was the fastest-growing imported vodka in the U.S., with shipments up 43% from the previous year. Svedka is currently the fifth-largest imported vodka in the U.S. and nearing the number-ten position among all U.S. vodkas (approximately number 12 or 13).
Constellation is clearly banking on Svedka’s brand name power to give the company’s spirits business a little oomph. Although it’s one of the largest U.S. spirits marketers with a volume share of more than 9%, sales of Constellation’s premium spirits have stayed relatively flat. However, Svedka might be the lucky charm that Constellation is seeking.
Let’s take a look at what the analysts have to say:
Is the expensive purchase going to pay off? Most analysts say yes, but it’s still a somewhat risky venture.
Bill Pecoriello of Morgan Stanley:
“We believe that the deal that Constellation made to acquire the Svedka vodka brand makes sense strategically (growth prospects for vodka, need to move its spirits business up the price curve and need to diversify), but the strategic move comes at a sizable price -EPS dilution for 3 years.”
Mark Swartzberg of Stifel Nicolaus:
“On its face, three years of EPS dilution is not value creation, but the Svedka brand is on a strong, multi-year trend of growth, and Constellation emphasized its intention to plow profits back into the brand for the sake of future growth. This is not a foreign exercise for Constellation, so our preliminary expectation is for long-term value creation.”
Christine Farkas of Merrill Lynch:
“While we think investors may be disappointed with the related earnings dilution over 3 years, we also believe that this marks an important strategic deal for STZ aiming to trade up in spirits, ultimately evolving into a more meaningful cross-category alcoholic beverage player over the longer term.”
What about the advertising? It seems a little over-the-top for stuffy corporate America (sorry guys), and most analysts agree.
Tim Ramey of D.A. Davidson Research on Svedka’s marketing:
“This appears to be a party product targeted to the Paris Hilton crowd. It appears to be what very hip 20-somethings in South Beach drink just before they climb out of a limousine, sans underwear. Our worry is that in 2009, when we have forgotten who Paris Hilton is (or why we ever cared), we will still be paying off the dilution from this deal.”
“Ironically, the brand is priced at the $12-$13 level so we see the product being positioned at a significant discount to the Abolut’s of the world at $16-$18, and not in the same league as Ketel One or Grey Goose.”
Mark Swartzberg of Stifel Nicolaus:
“Svedka advertising, which uses a “femme-bot” and positions her in the “future of adult entertainment” is described by the company as “tongue-in-cheek”. We consider it soft-porn and over the line.”
And finally, how will this acquisition affect Constellation’s interest in Absolut?
Christine Farkas of Merrill Lynch:
“Finally, this imported vodka acquisition may reduce the probability of a bid for Absolut Vodka down the road, but also suggests dilutive deals are not out of the question. In our view, future deals to more likely consist of small to mid-sized bolt on acquisitions versus multi-billion deals.”
With that said, Cuvelier, the founder of Spirits Marque One and creator of Svedka, will lead the New York-based brand management team. The marketing and sales team will retain their autonomy with the Svedka_Grl campaign (see second image) continuing to promote the brand.
Svedka includes four flavor: Citron, Clementine, Raspberry and Vanilla, all of which retail for around $15 per 750-ml.
posted at 2:11 PM
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