Glenboden M & A Originations

Would sale of Sobieski raise enough to save Belvedere ?

Priority Rating priority rating 2
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Origination Status press report and company statement, February 2012
Asset Sobieski Polska (Poland), no.3 domestic vodka portfolio
Buyer Oaktree Capital Management (USA), hedge fund owner of Stock Spirits
Seller founders and public shareholders of Groupe Belvedere (France)
Buyer Rationale creation of no.1 domestic vodka portfolio attractive to strategic buyer
Seller Rationale debt repayment
NBs Stock Spirits is no.1 vodka portfolio in Poland
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It appears that a sale process for the 'Sobieski' vodka brand is already at the infomemo and NDA stage, with several interested buyers. In our view the proceeds would not make a big enough dent in Belvedere's debt mountain. We still think that a debt-for-equity swap with Oaktree would be the best and possibly only option for the Group.

Sobieski heads brand list ...Belvedere's CEO, Krzysztof Trylinski, has said that the group must sell brands in order to repay debt (about €550 mln); that it will keep its production and distribution assets; that its focus is on building its newer brands (like Krupnik launched in 2009).

Sobieski's numbers are not too impressive however. In Poland its market share declined to less than 6% in 2011, because of substitution by mainstream brands including Krupnik. The big hope is the US market, where in 2011 the brand grew by 16% and breached the 1 mln cases sold threshhold.

There's a precedent for such brands being sold at outlyingly high multiples - Svedka vodka, also a fast-growing premium import story, and also just having breached the 1 mln cases sold mark, was bought by Constellation Brands for nearly US$400 mln in 2007.

... but brands not enough ...However, Svedka had a younger message - sex, not history - and moreover it's unlikely that Constellation Brands, or anyone else, would repeat such a bold move again.

We estimate that Sobieski, jointly in Poland and the US, had net sales of up to €100 mln in 2011, but low profitability given the price-war in Poland and continued losses in the US.

Even with the sale of William Peel whisky included, no.1 in France with 20% volume share, we believe Belvedere would not raise €550 mln through selling its main brands.

... merger option instead In a previous statement, Trylinski invited its creditors, first of all Oaktree Capital Management, indirectly a large Belvedere bondholder, to the negotiating table. Through Stock Spirits, Oaktree is vodka market leader in Poland with 35% volume share.

A debt-for-equity based merger between Stock and Belvedere would create an entity with over 50% market share in vodka in Poland, possibly end the price-war in that country, and create an attractive acquisition candidate for Diageo or Pernod Ricard.

The 40% of Belvedere's sales that are realised outside Poland, mostly in France, might subsequently be divested in this scenario; possibly that could be done in a way that sweetens the deal for Belvedere's shareholders.

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THIS LEAD'S VALUATION
Size (€ mln) >50% market share
Sector spirits (vodka)
Asset Quality Poland no.1 branded portfolio
Seller mid-cap plc
Buyer hedge fund
P/S n/a
P/Ebitda n/a
Type Stock - Sobieski merger
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