In the Spotlight – Central European Distribution Corporation
Central European Distribution Corporation (CEDC) may appear something of a misnomer for a company headquartered in the US and listed on the New York Stock Exchange but it is a name attracting considerable attention nonetheless. And it is little wonder.
The recent closure of its purchase of a 49.9% voting interest and a 75% economic interest in Russian wine and spirit importer and distributor The Whitehall Group is but the latest in a long line of acquisitions for the company, which was founded in 1990 and is now the fourth largest vodka producer in the world.
That the Whitehall deal followed hard on the heels of CEDC signing a binding commitment to acquire a 40% stake in vodka producer Russian Alcohol for US$156.5m comes as no surprise as this acquisitive company seems seldom to have been out of the news pages of just-drinks in recent years while it has coolly amassed an enviable portfolio of companies.
The fact that its two latest acquisitions are in Russia is significant. CEDC's success has been founded on its early entry into Poland where its investments in companies such as Polmos Bialystock, which it acquired in 2005, allowed it to tap into years of booming growth. With its Zubrowka and Soplica brands among others, it now controls around 33% of the vodka market in Poland. In addition to its own spirits brands, CEDC also handles third-party brands such as Sauza Tequila, Concha y Toro wines, Skyy vodka and Guinness.
But it is now increasingly looking to other emerging Eastern European markets, notably Russia, where it believes it can position itself to capitalise on continuing economic development. Analysts seem to agree that CEDC is timing the development of its business in Russia as well as its initial moves into Poland
Its two most recent investments certainly offer considerable advancement for the company in Russia, with complementary strengths in domestic spirits production and imported brands. Russian Alcohol is the largest vodka producer in the country with more than 10% of the market, producing leading brands such as Green Mark and Zhuravli.
Whitehall, meanwhile, includes brands such as Hennessy, Dom Perignon, Moet & Chandon, Veuve Clicquot, Campari and Concha y Toro in its portfolio, with distribution centres in Moscow, St Petersburg, Rostov and Siberia. As part of the deal, CEDC has a call option to acquire the remaining shares in the group in 2013.
In addition to the Whitehall and Russian Alcohol deals, 2008 also saw CEDC complete the purchase of an 85% stake in Copecresto Enterprises, which owns the Parliament vodka trademarks in Russia and internationally for $180.3m in cash, and 2.2m shares of common stock of CEDC.
CEDC's growth trajectory has delighted investors. Indeed, the company began last month by posting a 37% rise in first-quarter net sales to $313.6m, with operating income rising by 35% to $25.5m. CEDC attributed the strong performance to the continued expansion of "higher-margin branded sales" coupled with strong economic growth in its markets.
The Whitehall deal seems to signal further good news for CEDC shareholders. On the back of the deal, the company raised its full-year earnings-per-share outlook to a range of $2.50 to $2.65 from $2.30 to $2.45. The company has also boosted its 2008 turnover forecast to a range of $1.57bn to $1.7bn from $1.47bn to $1.57bn, while also upgrading earnings and sales forecasts for 2009.
It may not have the catchiest name in the international drinks business but Central European Distribution Corporation is a name that it is increasingly hard to ignore.
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