Comment - Russian Standard, CEDC Alliance: The Beginning of Something Beautiful?
Central European Distribution Corp has done the only thing that looked viable, as 'brand Russia' in vodka moves a step nearer to reality.
We'll never know how many options Central European Distribution Corp (CEDC) really had. But, the sense among analysts and commentators I've spoken to in recent months has been that the drinks distributor's cat-and-mouse game with Russian Standard risked ending in tears.
It hasn't, so far. News today that Russian Standard has agreed to pump a total US$310m into CEDC's deflated business clearly comes as a relief for CEDC shareholders. The Central Europe-focused drinks group's share price leapt by 15% on the Nasdaq exchange, following the announcement that a deal has been reached after several months of apparent impasse.
At the start of last month, following full-year results that showed CEDC slip $1.3bn into the red for its full-year due to impairment charges, I painted an unashamedly downcast picture of the distributor's business. It's nothing personal, of course, but pretty much the only positive I could take from the results was that CEDC's chief executive, William Carey, said he had no liquidity concerns. That he felt it necessary to make this point at all was concerning in itself.
Most pressing of CEDC's problems has been a $210m debt tranche due for repayment in 2013. With slim resources and little access to capital, partially thanks to a debt default warning from a major credit agency, CEDC has been at pains to exert negotiating power. Russian Standard has been able to wait it out.
It must be said, however, that Russian Standard's initial proposal for a strategic alliance with CEDC only made reference to the transfer of a “backstop credit facility” and the transfer of certain distribution rights and assets, in return for a higher stake. Russian Standard did not specify that it would pay $100m on top of the debt funding to secure a higher stake in CEDC, which is effectively what it has ended up agreeing to today. Perhaps it was lost in the woolly wording.
In any case, assuming the strategic tie-up with CEDC goes ahead, Russian Standard will increase its stake in the group from 9.9% currently to around 28%.
Looking ahead, Russian Standard clearly sees opportunities to consolidate itself into a mothership for branded vodka in Russia, together with a broad distribution system. Roustam Tariko, Russian Standard's founder & chairman, said today: “While the global spirits market is at the final stage of its consolidation, the process in Russia is just beginning.”
Is this just-drinks columnist Richard Woodard's dream coming true? “A new generation of Russian vodka brands is struggling to get its voice heard,” he lamented late last year. Well, CEDC's Russia-based Green Mark and Parliament vodka brands appear be slowly moving into Russian Standard's orbit, with further talks due between the firm and CEDC on how to cooperate more closely in Russia.
The inference throughout, of course, is that the game doesn't end here. Russian Standard will satisfy itself with 28% for now, but I would not expect the group to miss a trick should CEDC stumble on its long path to economic recovery.
Central European Distribution Corp has hailed a welcome distraction from its recent troubles, with its Zubrowka vodka brand names as the fastest-growing spirits brand last year....
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