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Interest gathers for Taittinger and Lanson

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Interest gathers for Taittinger and Lanson. In stark contrast to most of the French wine industry, sales of Champagne have been growing steadily and it is no surprise to find that the possible sale of two major names in the region has aroused considerable interest. Chris Brook-Carter examines the latest developments at Taittinger and Lanson and Champagne's general state of health.

Once the ink finally dries on the Pernod Ricard/Allied Domecq deal, the spirits industry would be forgiven for taking a well-earned break from consolidation activity. However, as Mumm and Perrier Jouet change hands as part of the acquisition, the sale may only mark the beginning of a major bout of deal-making in the Champagne sector.

In the last few weeks it has become apparent that both Taittinger and Lanson could become the latest in a number of Champagne brands to go on the market since the Millennium.

Things are moving fast. A firm line-up of potential suitors for the Taittinger Champagne business could be in place within four or five weeks, according to local sources, and it is thought family head Claude Tattinger is looking to move quickly on a sale.

Two banks, Rothschild and BNP Paribas, have been retained to entertain offers and to ensure that the rights of large and small shareholders are respected. The banks have apparently set a deadline of 20 July for firm offers for a deal that could fetch anything up to €2bn for a business that also includes a hotel and luxury goods company.

The latest reports suggest that a number of potential bidders have emerged, all of them investment groups rather than industry rivals. The interested parties include private equity groups Carlyle and Cinven; Eurazeo in an alliance with Colony Capital; Credit Agricole; PAI and Blackstone; and French holding company Wendel Investissement, which was also acting with a partner. US financier Barry Sternlicht and the UK's Terra Firma were named as the final two potential bidders.

There is still time before the deadline for a suitor to emerge from within the industry. However, one prime candidate LVMH has already suggested the asking price may be a little too rich for its blood.

Within days of Taittinger's news, Caisse d'Epargne, the French bank, said it was willing to listen to offers for its 44% stake in Lanson International, the maker of Lanson Champagne.

In a statement, Caisse d'Epargne said: "If opportunities to transfer this investment arose, and provided they corresponded to a long-term development plan for the company, Group Caisse d'Epargne, in agreement with the majority shareholders, would be prepared to examine the feasibility of transferring this interest."

Caisse d'Epargne has made it clear that is has no long-term role in the Champagne business. In fact it only acquired its 44% in Lanson for €38m as part of a refinancing deal last July. However, this "in-and-out" style ownership by an investment group is not without precedent.

Lion Capital, the former European unit of the American private equity firm Hicks, Muse, Tate & Furst, made a €264m profit from buying the G H Mumm & Cie and Perrier Jouet Champagne brands from Seagram in 1999 and selling them on to Allied Domecq 18 months later.

Although, Caisse d'Epargne's rhetoric about "long-term development" suggests it is looking for an industry partner to sell to, these sorts of figures explain why so many financial groups have taken an interest in Taittinger. Moreover, Champagne is far hotter property now than it was when Allied bought its brands just after the Millennium.

Over the past four years, despite a great deal of political upheaval, wars, an escalation of world terrorism and various major health scares, Champagne sales have continued to grow. While many other major vineyard areas in France face great economic difficulties and dwindling overall sales, demand for this unique sparkling wine has risen steadily, despite its relatively high starting price.

Overall, Champagne shipments finally, and convincingly, passed the 300m-bottle mark in 2004. This time, unlike in 1999, it is clearly not a false dawn. Stock has sold through in most major markets as good re-ordering at the start of 2005 confirmed. "Shipments in January 2005 are up by 2.31% on January 2004," Yves Bénard, president of the Union des Maisons de Champagne (UMC) representing all the negociants, told just-drinks, "so we know what has been sold has been drunk, we didn't have any stocks left".

As a consequence of this growth, Taittinger and Lanson should command a great deal of interest and make their sellers a substantial amount of money. Francois-Xavier Mora, head of the family that runs Lanson, believes the third-largest producer is worth €700m. But as Champagne becomes a victim of its own success, Taittinger may generate more interest.

The biggest trouble that the Champenois face is that nearly all the land that currently has AOC status has been planted, although it is not all producing useable grapes yet. As a result, there is a real fear that future production will not be able to keep pace with predicted increases in worldwide consumer demand, particularly if the 2004 rate of 2.42% growth quickens.

The crux of the problem is that the major houses, although they sell more than two thirds of the Champagne produced, own only around 10% of the appellation's vineyards. The growers and the co-operative groups own the lion's share of the Champagne vineyard. As a consequence, houses are unable to increase the volumes they sell much further, and with market forces the way they are, the cost of raw material has been increasing.

For Taittinger, this is far less of a problem. It owns some 280 hectares of vineyards, enough to produce almost 3m bottles. The sale of this land is a very rare opportunity for other producers to expand their own vineyard holdings. Lanson, however owns no vineyards so it is one of the most (if not the most) vulnerable to large hikes in grape prices.

Moreover, high levels of debts put a continued financial burden on Lanson, as its re-financing difficulties in early-2004 demonstrated. However, the re-financing agreement reached in July 2004 with French bank Caisse Nationale des Caisses d'Epargne, has helped ease those problems and the bank now claims Lanson is on a much firmer financial footing.

But Lanson may still attract a fair amount of interest, particularly if, as some commentators believe, the Taittinger family decide that their Champagne business is too big a cash cow to give up and end up selling only their other luxury goods assets and hotels.

Lanson is present in all price sectors from its Lanson brand down to Buyers-own-Brand (BOB) and is thus less exposed to a decline in one part of the market than some players. Furthermore, the company has set out plans to build its branded business and reduce BOB sales, which, if successful, will increase profitability and offset fast-rising grape costs. Another major branded wine group may have the distribution muscle to see those plans accelerate.

Some of the statistics and analysis in this feature were taken from the just-drinks.com Global Market Review of Champagne - Forecasts to 2009. For more information about this comprehensive report, visit: http://www.justdrinks.com/store/products_detail.asp?art=33985&lk=rotw_arc


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