Pernod Ricard Buys Absolut

Spirits Company Is Now Second to Only Diageo, but $8.9 Billion Price May Be Too High

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CHICAGO (Ad Age) -- In an upset, Pernod Ricard has won the auction for Absolut vodka, agreeing to pay the Swedish government nearly $9 billion for the iconic drink and some of its smaller, sibling brands.
Absolut is the No. 1 brand of vodka in the premium price category.
Absolut is the No. 1 brand of vodka in the premium price category.

The marketer of brands such as Beefeater Gin, Chivas Regal Scotch and Jameson Whiskey beat out Beam Global Spirits & Wine for Vin & Spirit, which owns Absolut.

The deal will catapult Pernod ahead of Beam as the world's No. 2 spirits concern by case volume, behind only Smirnoff and Johnnie Walker parent Diageo. Absolut is the No. 2 vodka brand by volume, and the No. 1 in the premium price category.

Prestige purchase
"Absolut is an exceptional brand," said Patrick Ricard, chairman-CEO of Pernod Ricard. "Its integration within our portfolio of premium brands combined with the strength of our worldwide distribution network paves the way for outstanding growth prospects. We become thus the co-leader of the global wine and spirits industry."

Beam Global –- a division of Fortune Brands -- was expected by many observers to prevail, in part because it already owned the U.S. rights to Absolut through a joint venture that essentially doubled as its U.S. sales force.

That agreement runs until 2012, but Barrington Research analyst Alex Paris said Pernod was likely to eventually try to buy out at least some of the remaining years of the deal rather than let a key competitor control its largest brand in its most crucial market.

"I don't think [Pernod would] be happy waiting until 2012 with one of their biggest competitors marketing it, not after paying that much," said Mr. Paris.

Beam, then, would be facing the prospect of being without a U.S. sales force or a major brand in the spirits' industry's fastest-growing category, vodka, which industry insiders have speculated might prompt them to either shop for another vodka brand or to sell off their other liquor brands.

Is Stoli next?
One interesting acquisition possibility is Absolut rival Stolichnaya, which had been marketed in the U.S. by Pernod. Pernod said today it would not renew that agreement once it expired, putting the brand's owner, SPI Group, in the market either for a new U.S. marketer or perhaps for a buyer. "I'm sure [Fortune] would be interested if it was for sale, but they've made it clear they won't overpay," said Mr. Paris. "Their management team has proven it's very disciplined."

The $8.9 billion price for V&S valued Absolut at a stunning 21 times its earnings. Fears of Fortune paying too much for Absolut had depressed its stock price recently. Apparently relieved investors drove Fortune's shares up nearly 9% today in heavy trading.

"While we had hoped to purchase Absolut at the right price, we didn't hesitate to put our shareholders' interests first," said Bruce Carbonari, president-CEO of Fortune Brands. "We didn't see the appropriate return for our shareholders at the announced price."

Swedes divest
The sale of Absolut and its sibling brands is part of a larger push by the Swedish government to reduce debt by selling off government-owned businesses. France-based Pernod said the production of Absolut will remain in Sweden.

Absolut's agency of record since its introduction into the U.S. market in the early 1980s has been TBWA/Chiat/Day. Beam Global's primary ad agencies are BBDO and Publicis.
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