Pernod wins the race for V&S

Pernod Ricard is now hot on the heels of spirits market leader Diageo following the acquisition of Vin & Sprit. The French giant shelled out a whopping €5.63 billion (£4.5bn) for the Swedish group. Ownership of the Absolut brand gives Pernod a major foothold in the US, potentially correcting a major strategic weakness.

As the deal was made public on Monday, Pernod announced that the acquisition made it the “co-leader” in the global spirits arena, with a portfolio that shifts in excess of 91m 9litre cases per annum. This rather lofty prognosis may be stretching the truth a little: Diageo claims total volume of more than 110m cases, and the regulatory authorities are likely to force Pernod to offload some assets, most likely Stolichnaya, in order for the deal to go through. However, there is no doubt that the deal represents a significant piece in the jigsaw.
The auction of V&S – which was one of six major state institutions that are being privatised – has dominated the headlines for the last year. It’s rare for an asset of Absolut’s magnitude to come up for sale, and thus it attracted the attention of pretty much all of the major drinks groups, as well as the odd private equity house. Both the Swedish government and V&S CEO Bengt Baron have played a canny hand throughout the process (which has, fortuitously, coincided with a major surge for Absolut in particular), courting a number of interested parties and ultimately securing a great price.
In the immediate aftermath of the sale speculation was rife among analysts that Patrick Ricard and his Swedish-speaking MD Pierre Pringuet had paid an “exuberant” price for the company. During Monday afternoon’s trading Pernod shares slipped 4.3%, though they have edged back up in the intervening time.
A clinical look at the numbers suggests that Pernod has indeed shelled out an enormous sum: 2006 sales plateaued at $1.48bn and the jewel of the V&S crown, Absolut, generates the lion’s share of its income in what surely ranks as the most competitive arena in the global drinks market: the US vodka segment. However, for a company with Pernod’s obvious ambition it represented an opportunity too good to miss. Since the Seagram carve up in 2002 it has flexed its considerable muscles across Europe and Asia, but in comparison to Diageo its US position was frankly puny. Absolut gives Pernod a valuable route into this most lucrative of territories, as well as bumping its market share up to 14%.
The tremors of this deal will reverberate in boardrooms around the world, and it’s inevitable that there will be a major shake up implemented by the Competition Commission. It seems likely that Pernod will have to give up Stolichnaya, which is sure to attract the attention of Fortune Brands.
Fortune – the parent company of Beam Global – would appear to be the biggest casualty of the sale, losing control of the US distribution for Absolut. Question marks also surely hang over the future of Maxxium.

Ben Grant, 02/04/08