Comment - Belvedere Group: The Storm is Coming

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Belvedere's sales are rising, but only the sale of a core asset looks likely to placate the French drinks firm's creditors.


I understand from a source familiar with the situation that Belvedere has received expressions of interest in a number of its assets. Pressure to sell a major brand is growing, as the group's CEO Christophe Trylinski conceded last month when he told Reuters that his company is seeking to sell “important” assets “as quickly as possible”.

Drinks sales for Belvedere are going in the right direction, fuelled by the ongoing rise of Sobieski vodka in the US and the successful debut of Krupnik vodka in Poland. Company-wide net sales for the three months to the end of March increased by 4% to EUR198m (US$252m).

This, however, is a sideshow to the ongoing tussle between Belvedere, its creditors and the bureaucratic French court system. In late March, the French courts placed Belvedere in judicial administration. Although Trylinski remains very much in-place, this effectively means that Belvedere's activities are being monitored and overseen by three court-appointed administrators, one of which represents the court and two of which represent the group's creditors.

The drinks firm has debts of around EUR520m and the creditors are thirsty for their money back. In theory, creditors could push for liquidation at this point, but they have not done so. They appear more keen to extract value from a functioning Belvedere rather than its carcass.

Shareholders certainly appear to be expecting action in the near future. Shares are up by 26% year-to-date and, since Trylinski's comments on asset sales last month, the firm's share price has leapt by close to 40% on the Paris Stock Exchange.

The Marie Brizard liqueur unit has been up for sale around two years ago, but was subsequently withdrawn from the market. That, however, was when Belvedere's previous management was confident of meeting a ten-year debt repayment schedule. This has broken down and such is the gravity of the situation that bedrock brands Sobieski vodka and William Peel whisky must now also be considered as prime candidates for Belvedere's transfer list.

Sobieski has rocketed as a mid-range vodka in the US since its launch in 2008, reaching 1m annual case sales in 2011. Its strong momentum has continued into 2012. It is the obvious jewel in Belvedere's crown and globally sells around 3m cases per year. That puts the brand in the same field as Stolichnaya and, interestingly, also Pinnacle vodka, which was recently acquired by Beam Inc for around US$600m.

Would Belvedere and its creditors cash-in on Sobieski? I'd say it's a growing possibility, despite Marie Brizard having always looked like the firm's preferred sacrifice. When you look at Belvedere's sales mix, only 3% of net sales come from the US, despite Sobieski's impressive gains there. This compares to 62% of sales from Poland and 26% from France. Meanwhile, a lot of money has clearly been directed to the firm's new-generation Krupnik vodka in Poland over the past year.

Selling Sobieski, then, might instantly transform Belvedere's relationship with its creditors, giving it the necessary breathing space to rebuild a rump business. Either way, things are coming to a head.

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