Sweden sells Absolut to Pernod for 5.6 billion euros

Sweden sells Absolut to Pernod for 5.6 billion euros
By Sophie Mongalvy AFP - Monday, March 31 12:34 pm

STOCKHOLM (AFP) - The Swedish government said on Monday that it had sold the Vin & Sprit group that owns Absolut vodka to the giant drinks company Pernod Ricard of France for 5.626 billion euros (8.88 billion dollars).

With the purchase, Pernod Ricard will become the world's leading provider of premium spirits, and will be propelled to a shared first place when it comes to overall wine and spirits sales, with 91 million cases of alcoholic drinks sold each year.

British Diageo currently dominates the sector. But the price of Pernod Ricrad shares was showing a fall of 4.32 percent to 65.15 euros in mid-day trading. Analysts said the price seemed high.

Swedish Financial Markets Minister Mats Odell said Pernod Ricard had made the best offer of four on the table for the state-owned drinks group.

"It's a very good price," Odell told reporters in Stockholm.

Absolut vodka would be Pernod Ricard's number one brand.

"Pernod Ricard will be an excellent home for Vin & Sprit," Odell said.

The Swedish government plans to use the profits from the sale to pay down the public debt and invest in the welfare state.

The centre-right government announced shortly after it came to power in 2006 that it would sell the state's holdings in six companies as part of a privatisation programme.

"The Swedish state's 90-year ownership of Vin & Sprit is now coming to an end. This is a reasonable passing of the torch," Odell said.

He noted that the Swedish state had long been in the curious position of on the one hand owning the hugely successful Absolut brand, well known for its high-profile international advertising campaign, while on the other hand promoting a restrictive alcohol policy at home for public health reasons.

The Swedish state has a distribution monopoly on alcohol, meaning consumers can only buy alcohol at state-run liquor stores called Systembolaget.

The monopoly is unaffected by the sale of Vin & Sprit.

Pernod Ricard, a global player after its acquisition last year of British group Allied Domecq, intends to keep V&S as a Swedish entity, based in Sweden, with continued responsibility for production and marketing in accordance with its established practice of decentralised management of key brands.

"A Swedish product must be produced in Sweden, the value of the brand is its roots," Pernod Ricard's chairman Patrick Ricard told reporters in Stockholm.

The total value of the transaction for V&S was equivalent to 55 billion kronor in accordance with the agreement signed on Sunday.

The minister said: "Through a carefully executed sale process we have achieved a very good transaction for V&S and for the Swedish people."

The three other candidates in the running were the diverisfied US group Fortune Brands, the US family-owned group Bacardi and the giant Swedish holding company Investor in conjunction with an investment fund EQT and a Swedish pension fund.

"All four bids were very interesting. But it became clear very early on that Pernod Ricard's bid was best," Odell said, noting that the bid was 21 times higher than Vin & Sprit's pre-tax profit of 2.2 billion kronor in 2007.

"Pernod Ricard submitted an offer that on an overall assessment is the most attractive, including offering the highest purchase price of the four final bids," he said.

Pernod Ricard will acquire the whole company, excluding V&S's 10 percent stake in Beam Global Spirits & Wine, Inc., the American spirits company.

Absolut is one of only four spirits brands that sell more than 10 million cases annually around the world, and is the leading upscale brand in the United States, selling more than five million nine-litre cases.

"Absolut fits perfectly with Pernod Ricard's strategy and further enhances the strength of our premium brands portfolio," Pernod Ricard said.

The company's chief executive, Pierre Pringuet, said the two companies were entirely complementary.

"There is absolutely no overlapping between Vin & Sprit and Pernod Ricard," he said.

The acquisition will permit the French company to jump from a fourth to a second place for overall spirits sales in the United States.

It will however have to put an end to a distribution agreement for Russian vodka Stolichnaya.

Pringuet said the purchase was "a major transforming acquisition for Pernod Ricard", adding: "I would describe it as a big bang."

The company said it expected the return on investment to "exceed Pernod Ricard's cost of capital by year four at the latest," and that the transaction would be completed during the coming summer, after receiving the necessary clearances.