If Stolichnaya's for sale then Bacardi heads the buyers' list
- June 15, 2008
||rumours of privatisation through trade sale, from sources close to the situation, June 2008;
||Stolichnaya (Russia), no. 3 international premium vodka brand;
||possibly Bacardi Ltd (Bermuda), no.3 global spirits company;
||SPI Group (Russia), state-owned spirits group;
||est. valuation of $ 3 bln, represents est. P/S of 5,0 (2007A);
||strong global premium vodka brand, acquisition appetite;
||timing in wake of Absolut privatisation, buyer pressure;
||Bacardi came third in the race to acquire Absolut, after Pernod Ricard and Fortune Brands.
There are at least three compelling reasons why SPI should proceed now with the sale of Stolichnaya. Firstly, the price recently paid by Pernod for Absolut shows that spiritsâ valuations are still riding high; second, Stolichnayaâs global distribution will no longer be handled by Pernod, and SPI needs to find a replacement fast; third, thereâs still acquisition momentum in at least one of the runners-up in the absolute tender, namely Bacardi.
Pernod paid a whopping x5 Sales for Absolut in March, setting a new record for a major vodka brand multiple, and providing a very clear comparable transaction for Stolichnaya at the same time. Obviously Pernod will terminate its global distribution agreement for Stolichnaya now, since the two brands compete in the global premium category. Itâs likely that any replacement for Pernod will drive a hard bargain with SPI, that theyâll insist on acquiring the brand rights outright as well.
Assuming SPIâs western management team is able to overcome the political and legal complexities standing in the way of the divestment, who is the most likely buyer ? Leaving aside nationally âfocused champions, notably UB Group in India, there are four players that are big enough to take on a $3 bln international acquisition â Diageo, Bacardi, Fortune Brands and Gruppo Campari.
We can exclude Diageo, because Stolichnaya competes head-to-head with its own Smirnoff, and the group is anyway now digesting its JV over Ketel vodka in the super premium segment. Fortune is still licking its wounds after losing the Absolut bid, which it should have won as Absolutâs distributor in the US. In the wake of that loss, the group announced a major share buy-back programme to return money to its shareholders; we believe theyâll pull in their horns and wonât have the stomach for a second competitive tender outside the US. As for privately âheld Campari, they tend to prefer smaller deals, like Cabo Wabo tequila in the US a year ago; or âbottom âfeedingâ type deals â they recently announced interest is buying up âleft oversâ to be divested from Absolut, mainly Plymouth gin.
In Marchâs Glenboden we said that Bacardi, as a loser in the Absolut bid, will try to keep its acquisition momentum by buying another major asset. We then tipped Polandâs CEDC as a possible target. However, that company is mostly focused on national brands, in Poland and now Russia, while Stolichnaya is much more suitable for Bacardi because itâs a global brand.
Also the proportions, vis-Ă -vis the Absolut deal, are ideal. Stolichnaya, with about 3,5 mln cases sold in 2007/8, is about one third of the size of Absolut in volume sales; but then Bacardi is also only about a third of the size of Pernod Ricard and, being privately -held, Bacardi doesnât mind staying at no.3 in the international rankings after the deal. On top of that, the portfolio fit is excellent, since Bacardi lacks a top selling premium vodka â Grey Goose is in the super-premium category, and Eristoff is a second âleague brand acquired by accident when Bacardi bought the Martini group in the early 1990s.
If all of that wasnât enough, Bacardi is well capitalized and hasnât made a major acquisition for over a decade; so it has money burning a hole in its pocket.