Pernod to swallow up Absolut vodka

Pernod Ricard SA agreed to buy Vin & Sprit AB of Sweden for 5.63 billion euros to gain the Absolut vodka brand and bolster its position as the world's second-largest liquor company.

Paris-based Pernod forecast as much as 150 million euros in pretax cost savings in the first year of the transaction, which the company aims to close in the middle of 2008, it said in a statement yesterday. The purchase doesn't include V&S's 10 percent interest in Beam Global Spirits & Wine Inc.

Pernod, which distributes Stolichnaya vodka outside Russia, beat out competitors including Fortune Brands Inc and Sweden's Wallenberg family to win the contest for Stockholm-based Vin & Sprit. Absolut controls about 9 percent of the US vodka market by volume, more than any rival except Diageo Plc's Smirnoff and accounts for about 40 percent of Vin & Sprit's sales by volume.

"Financial investors can not access the synergies that a trade buyer can generate," said Trevor Stirling, an analyst at Sanford C. Bernstein last week.

Sweden's government is selling Vin & Sprit as part of a plan to dispose of assets worth at least 200 billion kronor ($34 billion) by the end of 2010. London-based Diageo, the world's biggest distiller, dropped out of the running in February after agreeing to form a joint venture with the Dutch producer of Ketel One vodka.

Spirits and wine makers have spent about $27 billion to take over competitors since the start of 2005, figures compiled by Bloomberg show. Before Vin & Sprit was sold, analysts had said the company might fetch as much as $6 billion.

US market

The distiller introduced Absolut in 1979 and now sells almost 11 million cases a year of the vodka, which is made from winter wheat. The US accounts for half of sales. Vin & Sprit has fueled demand with flavored varieties such as raspberry and advertisements designed by artists that began when Andy Warhol painted an Absolut bottle in 1985.

US sales of Absolut came to 45.2 million liters last year, according to Vin & Sprit. Total vodka sales in the country were 491.9 million liters, figures from researcher Euromonitor show. The US vodka market is the world's largest by value and the second-biggest by volume after Russia's, Euromonitor says.

While sales of Absolut gained 9 percent by volume in 2007, Vin & Sprit's revenue is stagnating as the dollar's drop erodes the value of US sales on conversion to kronor.

Fourth-quarter revenue was little changed at 2.96 billion kronor after the weaker dollar wiped 70 million kronor from sales, Vin & Sprit said on Jan 31. Net income fell 25 percent to 465 million kronor.

Absolut accounts for about 40 percent of Vin & Sprit's sales by volume. The rest comes from alcoholic beverages including Plymouth gin, which must be distilled in the English city of the same name, and Cruzan rum, which has been made since 1760 on the Caribbean island of St. Croix. The company also owns the Level, Fris and Luksusowa vodka brands.

Agencies

(China Daily 04/01/2008 page17)