Comment - CEDC Pays Price for Past Debts
CEDC is on the verge of become wholly-owned by Russian Standard
When Central European Distribution Corporation confirmed yesterday (7 April) that it is set to file for bankruptcy in a US court, it marked a new low for the company whose crippling debts will likely see it become wholly-owned by one of its main competitors, Russian Standard.
It was all so different in 2008, when one set of quarterly results showed net profits up by 77% and sales climbing by 57%. The rosy numbers were in part due to the company's new interests in three spirits operations that year - Russian Alcohol Group, the Parliament vodka brand and the Whitehall Group. At the time, with buoyant trading conditions in all of its markets, the acquisitions were seen as sound business - a riposte to the fast-growing Russian Standard, which had doubled its global sales in the past three years.
However, as the financial crisis hit, the debt CEDC had taken on to invest in the three - eventually deadweight - Russian companies would lead the company to its Chapter 11 filing in Delaware this week.
There were other factors, too, not least the Russian Government's increasingly strict alcohol policy, which since 2008 has cracked down on advertising and introduced tax increases that some have estimated will cut vodka consumption by a third.
CEDC also found itself adrift in a mid-priced market where consumers were either moving up to premium labels or, as I wrote last year, dropping down into the non-taxed, illegal market of illicit stills and moonshine hooch.
Now, the company appears to have strong support for its rescue plan, with the vast majority of its note holders agreeing to the bankruptcy and other measures, which aim to clear US$665.2m in debt from CEDC's balance sheets. (The support, however, was just shy of the 99% CEDC required to have the plan accepted without recourse to the bankruptcy courts, just-drinks understand.) Previous filings from the company have also affirmed organic growth in its Polish operations, and improved underlying trends in Russia, CEDC's two main markets.
just-drinks also understands that CEDC's operations outside of the US are not intended to be affected by the bankruptcy filing, with business carrying on as usual. A source at the company highlighted statements from Russian Standard owner Roustem Tariko maintaining that he wants to keep CEDC as a complete company, allying fears that he will break it up and sell it off.
After all, as a fellow spirits business, Russian Standard is what can be termed a “strategic investor” in CEDC, not an equity firm looking to pick over the bones of a failed enterprise.
CEDC may be about to fall into the hands of a former rival, but it should still be around to fight its corner in the robust Eastern European vodka market.
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