Analysis - Pernod Ricard misbalance could be righted by Beam Inc, Brown-Forman
Could Pernod return to the M&A scene with a bang in the years to come?
Pernod Ricard is on the cusp of entering a “rebalancing phase” for both its geographical footprint and its portfolio, with Beam Inc and Brown-Forman being touted by one analyst as good targets for the firm.
Having celebrated the fifth anniversary earlier this year of its purchase of the Absolut vodka brand, Pernod has since been in “digestion mode”, said Laetitia Delaye at Kepler Cheuvreux in a note to clients today (17 July). While the emphasis has been on paying down debt since buying Absolut's parent company, Vin & Sprit, for EUR5.63bn (US$8.88bn), the company should now look to take stock of its position, Delaye warned.
“With growth prospects moderating in the emerging markets, the golden era of out-sized pricing power in Asian Cognac likely behind us, and the US rising, Pernod Ricard may have to ‘rebalance’ its geographical exposure and margin drivers to keep delivering solid earnings growth, while reducing its intrinsic risk profile,” said Delaye.
The company has suffered in China this year, following the introduction of anti-extravagance measures for state officials in December.
Meanwhile, Pernod's spirits rival, Diageo, has benefited markedly from the uptick in the US, a market where Pernod is less prominent.
Delaye suggested that Pernod could solve both of these issues if it made a move for one of two US-based spirits companies. “We see Beam (feasible from 2015, in our view) and Brown Forman (from 2016) as Pernod Ricard’s best options to significantly rebalance the group,” she said.
“While both acquisitions would make sense from a strategic standpoint, increasing the group’s exposure to the highly-profitable US market, and filling out its product gaps (American whisky and Tequila), our financial models suggest that Brown Forman would create more value (more cost synergy potential) and be less risky (from an execution standpoint) for Pernod Ricard, than Beam.
Pernod is set to release its full fiscal-year results at the end of next month.
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