Glenboden M & A Originations

If Stolichnaya's for sale then Bacardi heads the buyers' list

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Origination Status rumours of privatisation through trade sale, from sources close to the situation, June 2008;
Asset Stolichnaya (Russia), no. 3 international premium vodka brand;
Buyer possibly Bacardi Ltd (Bermuda), no.3 global spirits company;
Seller SPI Group (Russia), state-owned spirits group;
Financial Terms est. valuation of $ 3 bln, represents est. P/S of 5,0 (2007A);
Buyer Rationale strong global premium vodka brand, acquisition appetite;
Seller Rationale timing in wake of Absolut privatisation, buyer pressure;
NBs Bacardi came third in the race to acquire Absolut, after Pernod Ricard and Fortune Brands.
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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 spirits’ valuations are still riding high; second, Stolichnaya’s global distribution will no longer be handled by Pernod, and SPI needs to find a replacement fast; third, there’s 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. It’s likely that any replacement for Pernod will drive a hard bargain with SPI, that they’ll insist on acquiring the brand rights outright as well.

Assuming SPI’s 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 –focused champions, notably UB Group in India, there are four players that are big enough to take on a $3 bln international acquisition – 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 Absolut’s 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 they’ll pull in their horns and won’t have the stomach for a second competitive tender outside the US. As for privately –held Campari, they tend to prefer smaller deals, like Cabo Wabo tequila in the US a year ago; or ‘bottom –feeding’ type deals – they recently announced interest is buying up ‘left overs’ to be divested from Absolut, mainly Plymouth gin.

In March’s 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 Poland’s 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 it’s a global brand.

Also the proportions, vis-à-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 doesn’t 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 – Grey Goose is in the super-premium category, and Eristoff is a second –league brand acquired by accident when Bacardi bought the Martini group in the early 1990s.

If all of that wasn’t enough, Bacardi is well capitalized and hasn’t made a major acquisition for over a decade; so it has money burning a hole in its pocket.

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