Blog: Olly WehringV&S - worth an Absolut fortune to many

Olly Wehring | 27 September 2006

Late last year, Bengt Baron, the president and CEO of Sweden’s V&S Group, told just-drinks that he believed there would be “a pause” in the consolidation of the spirits industry, as the world’s distilling giants took a breather to reassess their priorities.

“I won’t be surprised if there’s a pause right now because there are some balance sheets that would need some mouth-to-mouth,” he laughed. “But once that happens, we’ll see more.”

It’s likely that Baron did not expect V&S, the state-owned producer of Absolut vodka, to become the next big prize on the block. Sweden’s Social Democrat Party, ousted at the polls on 17 September, had ruled the Scandinavian country for six out of the last seven decades.

However, a centre-right coalition has won office and looks set to sell off a slew of government assets, possibly including V&S.

Although the company has refused to comment on any speculation, and the new government has yet to announce its intentions, the industry rumour mill is in action, grinding out possible suitors for V&S.

Fortune Brands has been touted as a potential front-runner alongside a number of other possible bidders - Brown-Forman, Constellation Brands, Bacardi and Pernod Ricard, as well as brewing giant Anheuser-Busch.

It’s clear that any auction for V&S will be fiercely competitive. The jewel in the V&S portfolio is Absolut, the world’s third-largest spirit brand and a product that has managed to maintain its premium reputation in the eyes of consumers despite being launched in the US almost 30 years ago.

A possible obstacle for any bidder could be V&S’ membership of the Maxxium distribution network. A prospective buyer would have to pay the other members of Maxxium a fair amount of cash to extricate V&S from the partnership.

Fortune, as a partner in Maxxium, would not have that problem but it remains to be seen if the company could afford a price tag estimated by analysts at EUR4bn (US$5.1bn) after its role in the Allied Domecq takeover last year.

Bacardi could face competition problems due to its ownership of Grey Goose vodka. Constellation could be one to watch. Last month it announced a share offering had raised US$700m, suggesting it has the financial firepower to bid for V&S, while it is keen to bolster its stable of premium spirits.

Pernod is known to want to boost its presence in the US, even after integrating the Allied business. Joint managing director Pierre Pringuet was quoted as saying Pernod would watch the V&S situation “very closely” but there would be competition concerns over the company’s ownership of the international rights to Stolichnaya.

The world’s drinks giants look ready to do battle once more.


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