Pernod Reigns Second in Command
As Pernod said yesterday in a statement, the French company is now “the world's co-leader in the wine and spirit industry” after acquiring V&S, second only to Diageo. Acquiring Absolut, in addition to Seagram’s and Allied Domecq in the past, was a part of Pernod’s ultimate plan to become the industry leader, the company said.
As you can imagine, there are lots of opinions being thrown around today concerning the V&S purchase. One of the market’s biggest concerns is whether Pernod over-paid. Most agree that, yes, $8.9 billion is a hefty sum, but well worth it for what Pernod will get out of the acquisition. Namely, Pernod filled the missing vodka niche in its portfolio with one of the biggest spirits brands in the world. Pernod is now also the second biggest wine and spirits company in the world and moved from fourth place to second place in the important U.S. market.
HOW PERNOD STAYED AHEAD. So how did Pernod execs manage to strike a deal with the Kingdom of Sweden? Pernod’s commitment to keeping V&S in tact as well as putting forth the highest bid ($8.9 billion) reportedly helped seal the deal. The Financial Times is also reporting that Pierre Pringuet speaks Swedish, which helped win over the Swedish government and ultimately land Absolut.
"It [Pernod] was a very clear winner," said Mats Odell, Sweden's financial markets minister, adding: "It was the only bid that would not cut the company into pieces," as quoted in the FT.
Recall that Fortune and Bacardi reportedly planned to split V&S with their respective private equity co-partners, Nordic and Ratos.
Acting coy was another part of Pernod’s strategy. By keeping mum in recent weeks, Pernod allowed the market to speculate that Fortune would be the clear winner, while Pernod remained “hugely committed” to buying Absolut.
As we mentioned before, analysts and industry insiders are touting a number of pros and cons in the Pernod/V&S merger. Here’s what people are saying:
PROS. The driving “pro” is that Absolut gives Pernod much more scale, which many think outweighs any negatives. Lower than expected penalty fees and high synergies will hopefully help offset the high price Pernod is paying for Absolut, according to analysts.
Meanwhile, Absolut gives Pernod a much bigger playing field against Diageo in the U.S., the world’s biggest and most profitable spirits market. Prior to acquiring Absolut, Pernod’s share of the U.S. spirits market was 8.6%. Now it is 14%, which is a marked improvement but still pales in comparison to Diageo’s 26% market share.
True, vodkas such as Grey Goose have stolen some of Absolut’s thunder in recent years, but Absolut still has 9% of the U.S. vodka market share by volume. That puts Absolut in second place behind Diageo’s Smirnoff, and first place among imported spirits brands.
It’s also possible that Pernod won’t have to pay such a high penalty cost to exit the Maxxium distribution j-v. In a statement yesterday, Pernod said exiting Maxxium would result in “a low contractual cost.”
Managing Director Pierre Pringuet said yesterday costs for exiting Vin & Sprit’s Maxxium distribution venture were likely to be in the range of $31.55 million.
"We were told it is a reasonable number," he told Reuters at a news conference.
“We believe the V&S acquisition ticks all the major outstanding boxes for Pernod’s investment case,” said UBS analyst Melissa Earlam in a note. “With the reality of M&A now in the open, we believe that the market should focus on (1) the potential upside from Absolut synergies, (2) the strength of Pernod’s organic performance.”
CONS. It always comes down to money. Everyone agrees that Pernod paid a premium for V&S, which the French company is funding through loads of debt. Execs promised that the debt will be paid off quickly, but some analysts are not convinced, particularly amid a slowing economy.
Pernod expects growth in Europe and other countries to help offset softness in the U.S. wine and spirits market, but some analysts warn that the cash crunch could affect alcohol sales globally. Also, the economic downturn could turn more severe then Pernod is betting, causing the company to take longer to raise more capital.
Pernod will have to focus on improving Absolut’s sales outside of the U.S., such as Asia, in addition to improving its image in the U.S. Total sales grew 9% last year, but US sales rose just 2% and sales outside the U.S. jumped 15%.
Leaving Maxxium may be more expensive then Pernod is betting. Remy Cointreau is reportedly paying $240 million to exit Maxxium next spring. Could Pernod end up paying more? Pringuet commented yesterday that the cost to exit Maxxium is not as high as Remy’s.
Lastly, will this begin a new wave of expensive deals in the spirits world? It appears that nothing comes cheap in this industry, which could mean that spirits companies are going to have to get used to paying a premium for brands. Other industry insiders predict that the Absolut acquisition could spark a wave of purchases in the industry, so stay tuned...
FEDERAL EXPRESS NOT LIABLE FOR UNDERAGE DELIVERY
In a blow to Internet wine retailers, The Massachusetts Supreme Court ruled last week that Wine.com, the Internet wine merchant, cannot lay blame for shipping wine to an underage girl on their common carrier, FedEx. The court upheld a five day suspension of Wine.com's license in the state.
A 19 year-old woman ordered wine from Wine.com, which was delivered to her home by FedEx without an ID check. Wine.com pays FedEx two dollars per package to check verify age of the buyer, but the FedEx deliveryman failed to do so. The Massachusetts ABC issued a suspension of Wine.com's license. Wine.com sued and it went to the Supreme Court.
TRUCKERS PREPARING TO STRIKE
Many independent truckers are planning a nationwide strike starting April 1 through April 3 as diesel fuel surpasses the $4 mark across much of the nation. Truckers say soaring diesel prices are making it difficult to support their families or pay bills, so they are encouraging fellow truckers to stop delivering loads over the next couple of days. Truckers that work for companies are usually compensated for gas, so they are less likely to participate.
WSD BRIEFS:
GEORGIA LEGISLATURE passed a bill that would allow residents to order up to 12 cases of wine directly from wineries each year over the Internet or phone. The measure now awaits Gov. Sonny Perdue’s signature, a conservative who is generally against pro-alcohol bills.
TRINCHERO FAMILY ESTATES is now importing Angove’s Vineyard Select Riesling. The Australian wine will be available in top wine shops and restaurants nationally with a suggested retail price of $17.99. According to Nielsen reports, Riesling sales in the U.S. were up 23% last year in supermarkets alone, adding up to $120 million. Australian Riesling grew 65% last year.
Until tomorrow, Megan
“Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.”
Socrates
--------- Sell Day Calendar ----------
Today's Sell Day: 1
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
As you can imagine, there are lots of opinions being thrown around today concerning the V&S purchase. One of the market’s biggest concerns is whether Pernod over-paid. Most agree that, yes, $8.9 billion is a hefty sum, but well worth it for what Pernod will get out of the acquisition. Namely, Pernod filled the missing vodka niche in its portfolio with one of the biggest spirits brands in the world. Pernod is now also the second biggest wine and spirits company in the world and moved from fourth place to second place in the important U.S. market.
HOW PERNOD STAYED AHEAD. So how did Pernod execs manage to strike a deal with the Kingdom of Sweden? Pernod’s commitment to keeping V&S in tact as well as putting forth the highest bid ($8.9 billion) reportedly helped seal the deal. The Financial Times is also reporting that Pierre Pringuet speaks Swedish, which helped win over the Swedish government and ultimately land Absolut.
"It [Pernod] was a very clear winner," said Mats Odell, Sweden's financial markets minister, adding: "It was the only bid that would not cut the company into pieces," as quoted in the FT.
Recall that Fortune and Bacardi reportedly planned to split V&S with their respective private equity co-partners, Nordic and Ratos.
Acting coy was another part of Pernod’s strategy. By keeping mum in recent weeks, Pernod allowed the market to speculate that Fortune would be the clear winner, while Pernod remained “hugely committed” to buying Absolut.
As we mentioned before, analysts and industry insiders are touting a number of pros and cons in the Pernod/V&S merger. Here’s what people are saying:
PROS. The driving “pro” is that Absolut gives Pernod much more scale, which many think outweighs any negatives. Lower than expected penalty fees and high synergies will hopefully help offset the high price Pernod is paying for Absolut, according to analysts.
Meanwhile, Absolut gives Pernod a much bigger playing field against Diageo in the U.S., the world’s biggest and most profitable spirits market. Prior to acquiring Absolut, Pernod’s share of the U.S. spirits market was 8.6%. Now it is 14%, which is a marked improvement but still pales in comparison to Diageo’s 26% market share.
True, vodkas such as Grey Goose have stolen some of Absolut’s thunder in recent years, but Absolut still has 9% of the U.S. vodka market share by volume. That puts Absolut in second place behind Diageo’s Smirnoff, and first place among imported spirits brands.
It’s also possible that Pernod won’t have to pay such a high penalty cost to exit the Maxxium distribution j-v. In a statement yesterday, Pernod said exiting Maxxium would result in “a low contractual cost.”
Managing Director Pierre Pringuet said yesterday costs for exiting Vin & Sprit’s Maxxium distribution venture were likely to be in the range of $31.55 million.
"We were told it is a reasonable number," he told Reuters at a news conference.
“We believe the V&S acquisition ticks all the major outstanding boxes for Pernod’s investment case,” said UBS analyst Melissa Earlam in a note. “With the reality of M&A now in the open, we believe that the market should focus on (1) the potential upside from Absolut synergies, (2) the strength of Pernod’s organic performance.”
CONS. It always comes down to money. Everyone agrees that Pernod paid a premium for V&S, which the French company is funding through loads of debt. Execs promised that the debt will be paid off quickly, but some analysts are not convinced, particularly amid a slowing economy.
Pernod expects growth in Europe and other countries to help offset softness in the U.S. wine and spirits market, but some analysts warn that the cash crunch could affect alcohol sales globally. Also, the economic downturn could turn more severe then Pernod is betting, causing the company to take longer to raise more capital.
Pernod will have to focus on improving Absolut’s sales outside of the U.S., such as Asia, in addition to improving its image in the U.S. Total sales grew 9% last year, but US sales rose just 2% and sales outside the U.S. jumped 15%.
Leaving Maxxium may be more expensive then Pernod is betting. Remy Cointreau is reportedly paying $240 million to exit Maxxium next spring. Could Pernod end up paying more? Pringuet commented yesterday that the cost to exit Maxxium is not as high as Remy’s.
Lastly, will this begin a new wave of expensive deals in the spirits world? It appears that nothing comes cheap in this industry, which could mean that spirits companies are going to have to get used to paying a premium for brands. Other industry insiders predict that the Absolut acquisition could spark a wave of purchases in the industry, so stay tuned...
FEDERAL EXPRESS NOT LIABLE FOR UNDERAGE DELIVERY
In a blow to Internet wine retailers, The Massachusetts Supreme Court ruled last week that Wine.com, the Internet wine merchant, cannot lay blame for shipping wine to an underage girl on their common carrier, FedEx. The court upheld a five day suspension of Wine.com's license in the state.
A 19 year-old woman ordered wine from Wine.com, which was delivered to her home by FedEx without an ID check. Wine.com pays FedEx two dollars per package to check verify age of the buyer, but the FedEx deliveryman failed to do so. The Massachusetts ABC issued a suspension of Wine.com's license. Wine.com sued and it went to the Supreme Court.
TRUCKERS PREPARING TO STRIKE
Many independent truckers are planning a nationwide strike starting April 1 through April 3 as diesel fuel surpasses the $4 mark across much of the nation. Truckers say soaring diesel prices are making it difficult to support their families or pay bills, so they are encouraging fellow truckers to stop delivering loads over the next couple of days. Truckers that work for companies are usually compensated for gas, so they are less likely to participate.
WSD BRIEFS:
GEORGIA LEGISLATURE passed a bill that would allow residents to order up to 12 cases of wine directly from wineries each year over the Internet or phone. The measure now awaits Gov. Sonny Perdue’s signature, a conservative who is generally against pro-alcohol bills.
TRINCHERO FAMILY ESTATES is now importing Angove’s Vineyard Select Riesling. The Australian wine will be available in top wine shops and restaurants nationally with a suggested retail price of $17.99. According to Nielsen reports, Riesling sales in the U.S. were up 23% last year in supermarkets alone, adding up to $120 million. Australian Riesling grew 65% last year.
Until tomorrow, Megan
“Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.”
Socrates
--------- Sell Day Calendar ----------
Today's Sell Day: 1
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 12:32 PM
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