US/RUSSIA: Russian Standard details CEDC plan
- Russian Standard wants 32.99% stake in two deals
- Offers debt funding and distribution rights in return
- Sets deadline of 8 February for response
Russian Standard goes public with CEDC offer
Russian Standard has offered Central European Distribution Corp emergency debt funding and distribution rights on its namesake vodka in return for handing over a further 23% stake in its business.
In a letter dated 1 February, Russian Standard said that it is seeking to increase its stake in Central European Distribution Corp (CEDC) from 9.9% to 32.99% via two transactions. In return, the Russian group is prepared to offer CEDC a "backstop credit facility" amid concern over the distributor's ability to pay down US$207m of debt due in 2013.
The letter, published in a CEDC stock filing today, is the first time Russian Standard has gone into detail about its proposal to raise its shareholding in the US-based, Eastern Europe-focused company. In addition to debt funding, Russian Standard said that it will hand distribution rights on its namesake premium vodka to CEDC, as well as on newly-acquired Gancia wines.
The Russia-based distiller, which is owned by Roust Inc, argued that the two companies' portfolios fit well together in Russia and Poland. "In particular, the premium portfolio of Roust is highly complementary to CEDC’s existing portfolio of mainstream and low-premium brands, which should result in significant value creation," it said.
Following on from this, Russian Standard added: "We believe one of the immediate benefits that could be achieved by CEDC would be the ability to source spirits in Russia at a considerably improved cost than is being achieved currently."
A spokesperson for CEDC could not be immediately reached for comment on the letter. Last week, however, a CEDC spokesperson told just-drinks: "The offer made by Russian Standard is under our analysis."
Russian Standard has set a deadline of 8 February for the firm to respond to its proposal.
In an initial deal, Russian Standard said that it would "exchange" $103m of CEDC debt due in 2013 for CEDC common stock at around $7 per share. This would hand the Russian firm a 25% stake in CEDC.
In a second transaction, The group would then offer "Roust assets at a fair value to be determined" in return for increasing its stake to 32.99%. Each transaction "provides substantial benefits to [CEDC] on a stand-alone basis", Russian Standard said.
In December 2011, when news of Russian Standard's initial proposal broke, several analysts said that CEDC's weak finances could force the distributor to do a deal. Since then, CEDC has renewed a distribution deal with Beam Inc in Poland and also signed a deal for William Grant & Sons' First Drinks to sell Green Mark, Zubrowka and Kauffman vodkas in the UK.
This month's sermon from Ian Buxton looks at the ongoing issue of polarisation in the overall spirits category. He starts and finishes with two quotes, from two wildly disparate sources....
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