In the Spotlight - Life after Champagne for Rémy Cointreau
- Group could pursue takeovers
- Sale leaves Cognac as core growth driver
- Share price unmoved by deal
Rémy Cointreau uncorks Champagne sale to EPI
Rémy Cointreau may use proceeds from the sale of its Champagne business to pursue acquisitions in key markets, according to some analysts, although the group has been touted as a takeover target by others. Here, just-drinks takes a look at the market reaction to the Piper-Heidsieck deal.
Having been in the pipeline for almost as long as it takes to mature a bottle of France's famous fizz, Rémy Cointreau's Champagne sale heralded no more than a Gallic shrug on the Paris Stock Exchange.
The group's share price initially surged in the early hours of this morning (1 June), but was trading broadly flat for the day by 1500 this afternoon. It's been known and expected for some time that the group planned to sell its Piper-Heidsieck and Charles Heidsieck brands, along with 65 hectares of vines, to Societe Europeenne de Participations Industrielles (EPI).
With that in mind, all eyes were on the price tag. At EUR412.2m (US$593.6m), the deal is at the higher end of most analysts' estimates for a business that has struggled to turn a profit under the Rémy umbrella.
In the year to the end of March, Rémy's Champagne division delivered turnover of EUR103.6m. It will continue to distribute Piper- and Charles Heidsieck globally. Meanwhile, Rémy has agreed to a EUR75m "seller's loan" to EPI for nine years, reducing its initial proceeds. To my mind, this is a clear sign that price proved a sticky subject within the two firms' negotiations.
Looking ahead, the big question is what's next for Rémy? Despite the seller's loan, it still walks away with EUR337m. It is well-known that the group has been focussing on China's seemingly unquenchable thirst for expensive Cognac and it is possible that Rémy will seek to pour more cash into this pot.
However, some analysts believe that the company will now pursue takeovers. "We think Rémy will be looking at releveraging itself and make acquisitions to strengthen its position in markets such as the US and China," said Laetitia Delaye, head of beverage sector analysis at Kepler Capital Markets.
Might Rémy be a dark horse in the potential break-up of Beam Global Spirits & Wine? After all, competition concerns mean that one multinational will find it hard to swallow a standalone Beam Inc.
"The acquisition of a Scotch/Bourbon brand would make strategic sense, enabling Rémy to better leverage its fully-owned distribution network in Asia," said Delaye. "We think the company has a war chest of EUR700m to EUR1bn to make such acquisition," she added.
Rémy's CEO, Jean-Marie Laborde, said: "The proceeds of the sale will enable us to fund our development in major markets of today as well as in markets with strong potential for future growth."
That said, Rémy Cointreau has itself previously been described as a takeover target. In April this year, Deutsche Bank published a detailed note on why Diageo would be better off ditching its 34% stake in Moet Hennessy and gunning for Rémy instead. This does not, however, appear to have been based on any overtures from the companies themselves.
For the time being, Rémy's Champagne deal has done little to disturb the status quo. Following the group's announcement, rating agency Aurel BGC reiterated its 'sell' rating on Rémy.
Analyst group Gilbert Dupont, meanwhile, stuck to a 'buy' rating on Rémy's stock, raising its share price target to EUR59.3 from EUR53.9 previously. The company's share price stood at EUR56.8 at 1500 today. Other analysts will be reserving judgement for Rémy's full-year results announcement, due on 9 June.
At that point, the company will need to expand on its plans in order to reassure shareholders about its growth potential.
The penultimate part of this month's management briefing, which focuses on the Champagne category, sees Richard Woodard review the industry's main players....
Ian Buxton has some money burning a hole in his pocket. Some of his peers are suggesting he goes with what he knows, and spends it on drink, but not necessarily for consumption. Ian's none too sure....
China's Cognac market has plenty of room for growth and Pernod Ricard's Martell is set to continue to benefit more than its rivals, according to Sanford Bernstein analysts....
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