Glenboden M & A Originations

Troubled Belvedere resorts to alternative investment fund

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Origination Status proprietory origination, October 2010
Asset Belvedere Group SA (France), mid -sized international spirits and wine producer
Buyer candidates include Pernod Ricard, Bacardi, United Spirits, Suntory
Seller Rouvroy and Trylinski families, Bruce Willis, public shareholders of Belvedere
Buyer Rationale leading Polish vodka brand 'Sobieski'; growth in US market
Seller Rationale non -sustainability as stand-alone entity
NBs 'Sobieski' sales volume in the US grew by >40% in H1 2010
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Belvedere, the French spirits group, continues to defy financial gravity through rescheduling. However its latest move, to obtain finance from an alternative investments firm, is likely to be the group's last resort. The success of the jewel in its portfolio, 'Sobieski', looks like too little too late.

Family business in Poland and France ...Belvedere was established in the early 1990s by two families - the Rouvrays from France and the Polish Trylinskis - who still effectively control the business through jointly holding 41% of the voting shares of that public group.

Belvedere's main markets are Poland, delivering 35% of its sales revenue, mainly vodka with Sobieski as flagship brand. Then France, accounting for 30% of sales, mostly from wine brands in the group's Moncigale division.

... main hope is Sobieski in the US ...Belvedere's Polish vodka portfolio is no.3 in that market, with about 15% share. However that market has been affected by agressive pricing by the market leader, Polmos Lublin, which has hit profitability and caused Belvedere to focus more on less -premium brands like 'Krupnik'.

The main hope for the group is Sobieski's growth in the US where, after doubling volume sales in 2009, it grew by a further 45%, to exceed 350k 9-litre cases, in H1 2010. This success has largely been down to the actor Bruce Willis' endorsement of the brand.

Sobieski's growth in international markets has attracted attention. A ranking of vodka export growth, compiled by International Wine & Spirits Research, placed Sobieski in 6th place globally in 2009, ahead of its main Polish rival 'Wyborowa'.

... chronic problem with profitability ...Ultimately however, it's unlikely that Sobieski will be big or strong enough to save Belvedere from the low margins of most of its portfolio.

The group's EBITDA margin is very low by industry standards; negative in 2009, and significantly below 10% in the two previous years. 2010 is unlikely to see a major improvement, in spite of appreciation of the Polish zloty and US growth.

... acute financial issues ...Meanwhile debts are huge (see related origination). The legal 'safeguarding' action that the group completed in France in 2009, through which its debts were rescheduled, has not provided much of a breathing space in practice.

In 2010, the group has been locked in creditor disputes over the treatment of debt interest, including arguments over applicable jurisdictions; these have delayed the publication of Belvedere's H1 2010 balance sheet.

... non -core divestment delays ...Meanwhile the group's well -publicised attempt to sell its Marie Brizard liqueurs and 'William Peel' whisky business, treated as a discontinued operation in its accounts, has been delayed for want of securing a buyer at an acceptable price.

The main contender for that business appears to be an entity connected with the La Martiniquaise group, a domestic spirits player focused on 'B' brands; hardly a top-dollar buyer for Marie Brizard.

... in desperation turning to alternative investorsIn September 2010, while the disputes and delays were causing such drama, Belvedere announced that it had secured a new equity line of € 70 mln.

Issued by GEM Global Yield Fund, it's committed for three years, and has a cap on the provider's potential shareholding of 19,9%. In theory, that's another breathing space for Belvedere.

But as a rule, borrowers only turn to alternative investment firms when they have exhausted every other option. The cost of such a flexible and seemingly harmless financing option is likely to be very high for Belvedere.

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THIS LEAD'S VALUATION
Size (€ mln) 500
Sector spirits (vodka)
Asset Quality Poland no.3 branded
Seller mid-cap plc
Buyer large plc
P/S 1,5
P/Ebitda n/a
Type assumption of debt
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