Glenboden M & A Originations

CEDC continues its march to global vodka status after letter of intent in Russia

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Origination Status letter of intent signed for business acquisition, December 2007
Asset production and distribution assets of Parliament vodka (Russia)
Buyer Central European Distribution Corporation (Poland), leading vodka supplier in CE
Seller Copecresto Enterprises Ltd (Cyprus), holding company of Parliament Group
Buyer Rationale market entry into Russia, distribution system, premium vodka brand
Seller Rationale stronger partner for expansion in very competitive market
NBs CEDC claims to be the no.4 global vodka business by volume
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One year earlier, Glenboden identified CEDC as a new ‘champion’ emerging from central Europe. The company hasn’t disappointed since then, as it continues with its meteoric rise. With 2007 turnover of about $ 1,2 bln, its CAGR over the last six years has been about 25%. Make no mistake, CEDC is well on the way to being one of the biggest vodka players in the world; a major step will be to finalise this deal in Russia, or another one managed in parallel with Whitehall in that country.

CEDC began in 1990 as an importer of Grolsch and Foster’s beers into Poland. Key to its subsequent success was its unique 24-hour direct delivery system. If that wasn’t enough of a competitive advantage, in the late 1990s it listed on NASDAQ, and so had a source of capital which no other distributor in Poland could match.

It then embarked on an acquisitions spree – it now owns 18 regional distributors in Poland, having added 6 in the last year alone. Coupled with a strong import business of premium alcohol brands, CEDC is now by far the biggest importer and distributor of liquor in Poland. But its ambitions have not stopped there.

In recent years it has diversified to become the largest producer and brand leader in vodka in Poland, having acquired Polmos Białystok and Bols. It’s portfolio in that country includes Absolwent, the no.1 vodka brand, and the rights to arguably Poland’s best export vodka proposition, Żubrówka (with its famously authentic bison grass). Tired of being only about Poland, CEDC also acquired the no.1 vodka brand in neighbouring Hungary, Royal. Now its gearing up for the big one – Russia.

Parliament vodka claims to be the no.1 premium vodka brand in Russia, with $ 130 mln net sales and volume growth of about 25% in 2007. However one must be very careful when valuing vodka brands in Russia. It’s one of those markets where, if you added the market share claims of all the players, you’d have much more than 100% in each segment.

It’s also in danger of becoming ‘banalised’, with too many ‘wannabe’ and far-fetched brands. For example, Glenboden has recently read an article about high hopes for the launch of a super premium vodka, in Russia, branded after Donald Trump.

Wise to this, it may well be that CEDC values Parliament as much for its distribution network, with its nationwide salesforce of 400, as for the brand itself. In that case we suspect there are significant differences over valuation, between buyer and seller. Notice that the letter of intent was signed as far back as July, with no agreement since then let alone closing actions; the platitude coming from CEDC is that they’ve ‘moved forward’ with the deal recently.

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