UK: Pernod Ricard reluctant to play in M&A - analyst
Just because Pernod Ricard can now get involved in M&A again, doesn't mean that it will, according to Gideon Adler
Earlier today (26 April), the French company said that it has concluded the refinancing required after it bought Vin & Sprit for EUR5.69bn (US$8.88bn) in 2008. In signing a new EUR2.5bn five-year multi-currency revolving credit facility this week, Pernod celebrated “the final step in the refinancing of the debt” associated with the purchase.
Speaking to just-drinks after the announcement, Gideon Adler from Investec said that the move did not mean that the company would look to make any sizeable purchases in the near-future.
“When they made the V&S acquisition, the economic environment was more benign than it is today,” said Adler. “Soon after the purchase, they had to launch a EUR1.1bn rights issue to shore up the balance sheet as market conditions deteriorated and they had a highly-leveraged balance sheet. So, they had their fingers burnt, albeit not through any fault of their own.
“They're more prudent now.”
While noting that the company has “a legacy of delivering very good organic growth out of M&A in the last decade”, Adler also said that Pernod appears satisfied with its current range of brand offerings.
“They're well-positioned anyway with the brands they've got,” he said. “Absolut has plugged the gap previously felt in the US, where they used to be relatively under-weight, and there's a good balance between emerging and developed markets for brand positioning.
“They feel like they're in a good place and they don't want to disrupt that.”
Adler warned, however, that Pernod's position leaves Diageo in the driving seat for future M&A in the spirits category. “There are lots of deals that could be done,” he said. “Pernod is tied up with its balance sheet and this gives Diageo the advantage.
“They have deleveraged so quickly; that supports the share price. However, it still gives Diageo an open field to play in.”
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