Pernod Ricard global plans are pure play

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Spending time with Diageo seems to have rubbed off on Pernod Ricard's management team. Non-core businesses, especially in the food sector, are out of favour and diversification is a dirty word. "Pure play" is the new mantra - Richard Burrows's unique jargon to emphasise the French group's plans to become an unsullied wine and spirits company.

So goodbye to Orangina (eventually as the Cadbury Schweppes negotiations are still on-going) and the fruit preparation division (which includes Pampryl, Champomy, Minerva and Yoo-Hoo, plus SIAS-MPA and Poland's Agros foods division); the 1.3% stake in the French bank Societe Generale; Seagram's non-core activities such as UK off-licence chain Oddbins and weaker brands such as Sandeman Port, Passport Scotch whisky and Four Roses Bourbon; and BWG, the highly profitable distribution network throughout the UK and Ireland. Analysts believe Pernod Ricard could get over $3.5 billion for the whole auction, with Orangina making up to $500m-$600m of this figure.

3rd Largest Worldwide
Source: Pernod Ricard

The sale of BWG is surprising given its turnover in 1999 was Euro940m and it was the backbone to Pernod Ricard's strategic ploy of regionalisation and focusing on "local roots". However, the network it has now inherited from Seagram fills the holes where the group was exposed.

Asia: A much stronger position
Source: Pernod Ricard

"We are now far better balanced as a group and not dependent on Europe. We are now covering the areas where, before, our presence was lacking, namely North America, Latin America and Asia in the case of India," said Burrows.

Reaching critical mass on a global scale is the future plan. Brazil and India are the two most exciting markets for the future, Burrows said, both high dense populations with a taste for brown spirits. In India, Pernod Ricard now has Royal Stag Scotch.

Chivas Regal, one of the biggest Scotch brands in the Brazilian market, will "get number one branding from a strengthened sales force," Burrows said. "Chivas is not strong in Europe but we are," he continued, "and we believe it has an enhanced advantage in the future."

Chivas Ragal - Truly global
Source: Pernod Ricard

Martell, Burrows admitted was a brand "in decline", but had potential to be "turned round through the right distribution." The Grand National sponsorship will remain unchanged and Pernod Ricard will even retain Seagram's opulent express train which takes assorted VIPs to the race each year.

For $3.15 billion, analysts believe the group has got a good deal but not a great deal. "It's all very long-term with brands like Martell, The Glenlivet and Montilla. Diageo has got the plum brands like Crown Royal, 7 Crown American whiskey, Sterling Vineyards and VO Canadian whiskies. However, Burrows hopes the market will give the group a higher valuation, and, EPS (earnings per share) will rise, but slowly," said an analyst with a major US investment bank.

Seagram's Extra Dry gin (3.6m nine-litre cases/1999 Source: Drinks International Bulletin) is a great white spirit enhancement in the North American market but it's no substitute for Absolut vodka. Burrows seemed to make a plea at the press conference on Wednesday by admitting talks had broken down with Vin & Sprit during the "early winter" but "we would be more than happy to carry on negotiating, if they wanted to."

A senior executive at V&S told he could not comment on any "on-going" negotiations with any group. He declined to comment on rumours that Bacardi-Martini may sign the distribution agreement in coming weeks.

Acquiring Polmos Poznan, the Polish distillery that produces Wyborowa vodka, is still a priority for Pernod Ricard, Burrows said, though wrestling it from state ownership is some way off. He said Agros Holdings will pass the export rights to Poznan once any deal is made.

Beating the regulators

Though Burrows hopes to clear the regulatory hurdles in Canada, the US and Europe by March next year, he is fully aware that the intricacies of the deal may delay it further into 2002.

Well balance global reach
Source: Pernod Ricard

As this is the largest spirits and wine acquisition ever, it does seem likely one, if not all, anti-trust agencies will make some recommendations. After Interbrew's clash with the UK's DTI and the historical complications surrounding cross-border acquisitions/mergers, neither Pernod Ricard nor Diageo may see the real benefits for two to three years.

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