Its unlikely that the likes of Diageo would be interested in acquiring Finlands Altia Corp

It's unlikely that the likes of Diageo would be interested in acquiring Finland's Altia Corp

Earlier this year, the Finnish Government announced plans to privatise Altia Corp, as part of its programme to raise funds for budget spending.

We believe that the eventual buyer is unlikely to be a global spirits and wine player; rather a Nordic-focused consumer brands group, or a private equity firm that's building an alcohol beverage portfolio in Europe.

Margins too low for global majors ...

For a branded spirits & wine business, Altia's profitability at only 8% EBITDA margin is very low. That tends to preclude it from being of interest to the likes of Diageo or even Campari, for whom such a business would entail too big a dilution of their existing operating profit.

It could be different, had the Finnish state chose to sell Altia's own brands business separately to the rest of the group. That division, which contributes 40% of total sales, had an EBITDA margin of 16% in 2013, and includes a number of strong Nordic regional brands.

However, it's unlikely that the Government would make such a move, as it would be politically sensitive to 'cherry-pick' Altia's branded unit, and leave the rump of the group - comprising a low-margin third-party brand distribution business, and an industrial products & services division - to try to survive.

... private equity interest likely ...

A more likely outcome is for Altia to attract the attention of private equity players - especially those that already have spirits and wine companies in their portfolio - and are interested in expanding their Nordic scale or pan-European footprint.

The clearest contender is Ratos AG, which owns Arcus-Gruppen - an almost parallel business to Altia in the Nordic region. Further afield candidates include Aurelius, which owns Berentzen in Germany, and 21 Partners, the owner of Farnese in Italy.

Such a buyer might keep both Altia's own brands and partner brands businesses - especially if they don't yet have independent distribution in the Nordics - but re-sell Altia's industrial services group, which includes ethanol, starch and animal feed, to a consolidator in ingredients or agri-products.

... or Nordic consumer products champion

How about Orkla Group making a bid? For some time, Orkla Foods has been retrenching from markets outside the Nordic and Baltic region, in order to focus on its brands in its home markets. Arguably Altia, since selling Finlandia to Brown-Forman in 2000, has the same strategy.

By adding spirits and wine to its existing businesses in ambient and frozen foods, Orkla will be providing a broader offering to the retail trade. Moreover, it can leverage its skills in developing established local brands in the Nordic region.

Altia's combined spirits and wine operations contribute 70% of group sales and deliver an EBITDA margin of 11%. That would grow Orkla Foods' revenues by 25% overnight, and would only be slightly dilutive of its 13% EBITDA margin.

Another possible happy ending would be if Altia's industrial services unit could also find a home, within the Orkla Group, by being integrated into Orkla's food ingredients division.

That would look great politically for the Finnish Government.