Glenboden M & A Originations

CEDC’s second acquisition option in Russia comes into view

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Origination Status structured business acquisition intention announced, February 2008
Asset The Whitehall Group (Russia), domestic wine and spirits importer and distributor
Buyer Central European Distribution Corporation (Poland), leading vodka supplier in CE
Seller founder of Whitehall, Mark Kaouffman, and minority shareholders
Buyer Rationale market entry into Russia, distribution system and network
Seller Rationale expansion of portfolio
NBs CEDC claims to be the no.4 global vodka business by volume
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Recently in Glenboden, we reviewed CEDC’s attempt to acquire the Parliament vodka brand in Russia. We thought that the Russian vodka market is in danger of becoming ‘banalised’; that CEDC should focus more on gaining distribution in Russia, rather than on acquiring a local brand with questionable equity there. Now, it might be that CEDC will one day finalise the acquisition of Parliament; however this deal with Whitehall suggests they are wisely prioritizing distribution after all.

That’s not to say that closing a deal with Whitehall is going to be easy, even if it doesn’t include a tricky brand valuation as Parliament does. The transaction is ‘subject to negotiation and completion of an acquisition deal’, which already sounds like the outcome is unclear.

Also, the deal structure appears to include a mismatch between voting share and economic benefit; CEDC is to have 49,9% of the former, with Whitehall’s founder Mark Kaouffman retaining control, but 75% of the latter. What’s more, the option to buy out Mr Kaouffman’s shares triggers as far out as 2013. The only thing that’s clear in such a structure is that it’s a precarious one,

Fundamentally, however, Whitehall seems to present an attractive platform for CEDC to fulfill its major ambition of penetrating Russia. It’s reported to have generated $ 200 mln in net sales from 1,2 mln cases of wine and spirits, which indeed points to a very premium offering at a time when the premiumisation trend in Russia is strong. It also has four distribution centres spanning Moscow, St Petersburg, Rostov and Siberia.

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