US: CEDC signs deal to buy Russian Alcohol, cuts profits guidance
Central European Distribution Corporation has signed a deal with private equity group Lion Capital that will see it take full control of vodka producer Russian Alcohol within five years.
Central European Distribution Corporation (CEDC) has said it will acquire a controlling stake in Russian Alcohol in 2009, after agreeing to buy up some of the shares owned by Lion for US$17.75m in cash, the drinks firm said today (27 April).
The move will increase CEDC's stake in Russian Alcohol from 42% to 54%, although the move is expected to hit full-year profits.
CEDC and Lion have also signed a deal mapping out CEDC's path to gaining full management control of Russian Alcohol by the end of 2013.
CEDC will pay $55m in 2010 and then $150m in 2011, 2012 and 2013 in order to buy up the equity in Russian Alcohol currently held by Lion Capital and its affiliates.
Under the terms of the deal, once CEDC has paid $230m of the total sum then it and Lion will run Russian Alcohol as a 50-50 joint venture. Once CEDC has paid $380m, it will gain sole management control of the company, which owns the Green Mark vodka brand, which has around a 15% volume share of the Russian vodka market.
In each of the five years covered by the deal, CEDC will be obliged to issue shares to affiliates of Lion Capital. It has committed to issuing 1m shares of common stock in 2009, 1.5m in 2010 and 2011, 300,000 in 2012 and 1.8m in 2013.
The deal is subject to regulatory approval.
CEDC president and CEO William Carey said: "The transaction gives us increased financial flexibility in acquiring Lion's equity holding given the current turmoil in the financial markets.
"The Russian Alcohol group's performance has been outstanding with the volume share in the Russian vodka market increasing approximately 10% to 15% over last 15 months. We have continued to see strong sales performance during the first quarter of 2009, with Green Mark and Zhuravli volumes growing approximately 20% as compared to the first quarter 2008."
Javier Ferran, partner of Lion Capital, added: "We are pleased to have reached an agreement that continues our partnership with CEDC for the next few years while ultimately providing for a smooth transition to their full ownership of this business.
Following the announcement of the deal, CEDC's CFO, Chris Biedermann, lowered the firm's earnings per share guidance for 2009, from a range of $2.50 - $2.80 to $2.40 - $2.65. He raised net sales guidance for the year from $1.25 - $1.40bn to $1.55 - $1.68bn, however.
"This guidance does not factor in any potential synergies within Russia, and we expect the transaction to be accretive to our results starting in 2010," he said.
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