Thread: Investors toast loss in Absolut bidding

(This is about the sale--April 1st)

Investors toast loss in Absolut bidding

Fortune Brands' stock up after rival pays premium
By Mike Hughlett | Tribune reporter
April 1, 2008

Fortune Brands Inc. on Monday lost its bid to buy Sweden's Vin & Sprit AB, a deal that would have given it global rights to the coveted Absolut vodka brand. With its failure, Fortune will lose U.S. rights to distribute Absolut, representing a long-term hit to its liquor business.

Yet investors couldn't have seemed happier Monday, rewarding Fortune's stock with its biggest one-day percentage gain in more than seven years. That's because they were relieved the Deerfield-based company didn't do what Wall Street feared most in the short-term: Pay too much for Vin & Sprit.


Instead, somebody else did, or at least that's the way some stock analysts interpreted it Monday. Pernod Ricard SA of France, the world's second-largest liquor company, agreed to fork over $8.3 billion to the Swedish government, owner of Vin & Sprit.

Analysts had been expecting a sale price of $6 billion to $7 billion. "I was very surprised by the price," said Ann Gilpin, an analyst at Morningstar Inc. "Pernod paid a huge premium."

Pernod's stock sank 4.3 percent in Paris trading, as investors worried the firm paid too much. Meanwhile, shares of Fortune Brands, the world's fourth-largest spiritsmaker and owner of such brands as Jim Beam and Canadian Club, surged $5.64, or 8.8 percent, to close at $69.50.

Part of the stock's climb stemmed from the company's announcement it plans to repurchase 15 million shares of its common shares. But Gilpin said she thought the stock's jump "was just a relief from a crisis averted."

Fortune, a mini-conglomerate that makes everything from golf balls to faucets, has made no secret of its desire for Absolut, the top-selling U.S. vodka after Smirnoff.

Investors worried that overpaying would eat into future earnings with big debt-service costs or by issuing new shares to finance a deal, a negative to existing stockholders.

Uncertainty over the Absolut deal has been a weight on Fortune's stock in recent months, analysts said. The company's chief executive, Bruce Carbonari, seemed to acknowledge the same Monday.

Price called too high
"A lot of [investors] thought we would stray from the ranch, but we didn't, and they respected that," he said in an interview with the Tribune. While the company had a "fully financed deal, ready to go," the price for Absolut was just too high to generate an appropriate return.

He declined to give details of the bid, in which Fortune teamed up with Nordic Capital, a major Swedish private-equity firm.

Fortune was one of several companies eyeing Vin & Sprit over the past year after the Swedish government put it up for sale. Some industry analysts thought Fortune had an advantage because of its U.S. distribution joint venture with Vin & Sprit.

The partnership was formed in 2001 when Vin & Sprit, which also makes Cruzan rum, essentially paid $270 million to get access to Fortune's distribution network. At the same time, the Swedish company bought 10 percent of Fortune's Jim Beam brands subsidiary, a stake worth $543 million today, according to securities filings.

With the sale to Pernod, Fortune said Monday it will start repurchasing Vin & Sprit's 10 percent stake. Also, Fortune said it plans to continue distributing Absolut in the United States until 2012, when its agreement expires.

But after that, Fortune's vodka presence will be diminished. It has its own vodka brands —Vox on the superhigh end; Gilbey's, Wolfschmidt and Kamchatka on the low end— but they are relatively small players.


Looking at options
The loss of Absolut, "clearly creates a hole in their portfolio," said Peter Lisnic, a stock analyst at Robert W. Baird & Co. "I'd imagine there are strategic options they are looking at."

In fact, there is already speculation about Fortune as a suitor for Stolichnaya, the famous Russian vodka.

Pernod's acquisition of Vin & Sprit will result in the termination of Pernod's agreement to distribute Stolichnaya outside of Russia. Stolichnaya's Russian owner, SPI Group, could find a new distributor. Or it could sell Stolichnaya, Andrei Skurikhin, a minority investor and former director of the Russian company, told Bloomberg News.

Baird's Lisnic said Stolichnaya and Fortune "could be a natural fit."

Carbonari said "Vodka is a very attractive category and Stolichnaya is a very attractive brand, but there are other brands that are attractive, and not just in vodka."

He said Fortune, with its strong portfolio of whiskey brands, is well positioned financially to make a deal, and it will be looking close at any opportunities. But Carbonari added, "We don't need to make a big vodka play."

mhughlett@tribune.com

http://www.chicagotribune.com/business/ ... 7034.story

Absolut sale to Pernod is victory for government

By Adam Cox Reuters
Published: April 1, 2008

STOCKHOLM: The coalition government of Sweden may be tempted to break out the shot glasses and raise a toast after pulling off the unexpectedly lucrative privatization of Vin & Sprit, the maker of Absolut vodka.

Pernod Ricard won a hard-fought auction Monday to buy V&S for €5.63 billion, or $8.9 billion, paying much more than the €3.8 billion to €4.4 billion expected by investors.

The deal, which was backed by the government, marks a rare political victory for the alliance led by the Moderate Party, which has stumbled frequently since being voted into power in late 2006.

It bolsters a central plank in the government's plan to institute Sweden's biggest privatization drive: the state is selling assets in six wholly or partially owned companies.

Prime Minister Fredrik Reinfeldt has pledged to use privatization proceeds to pay down debt. He has also pledged to cut Swedish tax rates, which are among the highest in the world.

Today in Business with Reuters
For bargain-basement America, foreign investment no panaceaAsian stocks rise on strength of commoditiesHigh rice prices no windfall for many Asian farmers
But political analysts caution that the V&S sale may not be enough to lift the alliance's poor performance in polls over the longer term. A poll this month by the National Institute for Consumer Research, or SIFO, showed that the alliance lagged behind the Social Democrat-led opposition by 16 percentage points.

"If this is going to be portrayed in the media as a victory, then of course it could have a short-term minor impact - finally they have done something well," said Soren Holmberg, a professor at Gothenburg University.

Reinfeldt has suffered a series of embarrassments, starting with the departure of two ministers because of tax scandals just days after he took office.

In November, Reinfeldt lost a staunch party ally when the defense minister, Mikael Odenberg, resigned to protest cuts in the defense budget. Weeks later, Reinfeldt suffered another public-relations setback when a top aide resigned after she was found to be out drinking alcohol while she was on duty.

The personnel changes "have been chopping into their credibility as a competent government," Holmberg said.

With the successful sale of V&S, the government managed to overcome fraught market conditions and fill its coffers far more than anticipated.

Commentators have been saying that the governing alliance could get political mileage from the high selling price for V&S because it blunts claims from opposition parties that Sweden may be selling valuable assets at prices that are too low.

But Magnus Blomgren, a professor at Umea University, said the money itself was not so much the issue, since Sweden has been running a fiscal surplus.

"They can say that this is a success story in terms of getting the state a lot of money, but the problem is the state doesn't need a lot of money," he said.

The Social Democrats, in the opposition, expressed concern that the sale could come at the expense of jobs in Sweden.

"From that perspective, the price tag is less important," said Tomas Eneroth, economic spokesman for the Social Democrats.

Pernod Ricard stopped short of promising not to cut jobs, but it said most of the €125 million to €150 million in savings it expected to achieve from the deal would come from other measures, and that it wanted V&S to continue to be based in Sweden.

At a press conference to announce the deal, Pernod executives spoke of V&S remaining a Swedish company and said a key part of the brand's value was that Absolut was made in Sweden.

The V&S sale was especially sensitive in Sweden because the company is considered a national success story.

Founded in 1917 as a national monopoly for the production of alcoholic drinks, V&S used clever marketing and advertising techniques to make Absolut a fast-selling premium brand recognized around the world.

Some have wondered why the Swedish state was ever in the alcoholic drinks business in the first place. Part of the answer, ironically, lies in Sweden's aims to curb alcohol abuse in a country known for excessive consumption.

Sweden has controlled both the production of alcohol, via V&S, and its distribution, through the System Bolaget monopoly network of sales outlets.

But in a potentially ominous sign for Reinfeldt, it appears that many voters are not happy with the idea of privatizing state-owned companies.

"When you ask people if we should sell out or not sell out government-owned businesses, it's not popular," Holmberg, the Gothenburg University professor, said.

http://www.iht.com/articles/2008/04/01/ ... /vodka.php

Is Absolut worth $8.9 billion? Absolutely!
Posted Mar 31st 2008 9:31AM by Zac Bissonnette
Filed under: Deals, Fortune Brands (FO)

When the Swedish government put Vin & Spirit, parent company of Absolut Vodka, up for sale more than a year ago, industry experts estimated it would fetch over $4 billion.

Now, Pernod Ricard, a French liquor company, is buying the brand for $8.89 billion. Absolut is the third largest spirit brand in the world, and the sale attracted the interest of many of the industry's top players: Fortune Brands (NYSE: FO), Diageo and Bacardi.

What makes the high valuation afforded to Absolut so interesting is that Pernod Ricard is paying nearly $9 billion for a brand that only really came to prominence in its current form in the 1980s.

With its racy and provocative ads (like the one on this post), Absolut was one of the first mainstream brands to aggressively target the gay community. Back when the sale effort was first announced, I opined that targeting gay media outlets was a decision that paid off, as this large, and often affluent population group, now counts Absolut as its vodka of choice. Perhaps a company like Budweiser, which has been widely criticized for spending money on ads (such as the Super Bowl) that have done little for the brand, could learn something from Absolut's edgy marketing.

The M&A field is in a rough patch right now, struggling from a tough debt market and general economic malaise. But apparently, strategic buyers are still able to pay up for strong brands.

Link

Fortune was one of several companies eyeing Vin & Sprit over the past year after the Swedish government put it up for sale.

When the Swedish government put Vin & Spirit, parent company of Absolut Vodka, up for sale more than a year ago, industry experts estimated it would fetch over $4 billion.

So the Swedish government owns Absolut?
.

Originally Posted by MyAmerica

Fortune was one of several companies eyeing Vin & Sprit over the past year after the Swedish government put it up for sale.

[quote:fu141c43]When the Swedish government put Vin & Spirit, parent company of Absolut Vodka, up for sale more than a year ago, industry experts estimated it would fetch over $4 billion.

So the Swedish government owns Absolut?
.[/quote:fu141c43]

WOW!