Pernod to Buy Absolut Vodka Maker for EU5.28 Billion

March 31 – Pernod Ricard SA, the world’s second- largest liquor company, agreed to buy Vin & Sprit AB from Sweden’s government for 5.28 billion euros ($8.34 billion) to gain the Absolut vodka brand and take on Diageo Plc’s Smirnoff in the U.S.

Pernod beat out rivals including Fortune Brands Inc. and the billionaire Wallenberg family with its bid. Prime Minister Fredrik Reinfeldt, in power since 2006, put Vin & Sprit up for sale to reduce the state’s involvement in the economy and pay debt.

Pernod dropped as much as 5 percent in Paris trading today on concern that the company may be paying too much. The purchase will make the producer of Martell cognac the second-biggest spirits seller in the U.S., the world’s largest vodka market by value. Absolut controls about 9 percent of the U.S. vodka market by volume, more than any brand except Smirnoff.

“It’s a good operation, but the price is high,” said Salah Seddik, a fund manager at Richelieu Finance, which oversees $6.3 billion. “This will increase the debt level of Pernod, even though it’s not a worrisome level.”

Pernod fell as much as 3.43 euros to 64.66 euros in Paris trading and was trading down 4.3 percent at 65.14 euros at 1:11 p.m. local time. The shares have slid 18 percent this year, cutting the company’s market value to 14.3 billion euros.

Increased Borrowings

Pernod, the maker of Chivas Regal whiskey, said it is paying 20.8 times earnings before interest, taxes, depreciation and amortization, prior to any savings. The company paid 13 times operating profit for Allied Domecq Plc in 2005.

Fortune Brands said in a statement it “didn’t see the appropriate return for our shareholders at the announced price.”

In addition to the purchase price, Pernod is assuming debt of 346 million euros, taking the total cost of the transaction to 5.63 billion euros, spokeswoman Florence Taron said. The acquisition is being fully funded by debt and will almost double the company’s net borrowings to 12 billion euros, Pernod said.

“The quick bidding process indicates Pernod’s offer was substantially above the other bidders,” said Lars Soederfjell, head of equity strategy at ABG Sundal Collier in Stockholm. “The Swedish government is being very well paid for the company.”

The transaction means Pernod’s contract to distribute Stolichnaya vodka will end once the brand’s Russian owner SPI Group has found a replacement. The French company plans to sell Plymouth Gin and some of V&S’s other smaller brands.

Cost Savings

Sweden is selling Vin & Sprit to dispose of assets worth at least 200 billion kronor ($34 billion) by the end of 2010. London-based Diageo, the world’s biggest distiller, dropped out of the running in February after agreeing to form a joint venture with the Dutch producer of Ketel One vodka. Other bidders included Investor AB, the Wallenberg family’s holding company.

Bengt Baron will remain chief executive officer of V&S after the takeover and the company’s headquarters will stay in Stockholm, Pernod Managing Director Pierre Pringuet said today.

Pernod forecast as much as 150 million euros of annualized pretax cost savings from the transaction, which it aims to close in the middle of 2008. The purchase doesn’t include V&S’s 10 percent stake in Fortune Brands’ Beam Global Spirits & Wine Inc.

Fortune said today it plans to repurchase the stake in the unit from the Swedish government and will also seek to buy back as many as 15 million shares of common stock.

“While we had hoped to purchase Absolut at the right price, we didn’t hesitate to put our shareholders’ interests first,” Fortune’s President and Chief Executive Officer Bruce Carbonari said today in an e-mailed statement.

U.S. Distribution

Spirits and wine makers have spent about $27 billion to take over competitors since the start of 2005, figures compiled by Bloomberg show. Before Vin & Sprit was sold, analysts had said the company might fetch as much as $6 billion.

Pernod’s bid was “among the highest multiples paid for a company in this business,” Financial Markets Minister Mats Odell said on a conference call. The French company raised the final offer from what it initially indicated it would pay, he said.

Odell added that Vin & Sprit “won’t be split” and that he expects to complete the sale of the Beam stake in months.

“This is a good deal for both sides,” Trevor Stirling, an analyst at Sanford C. Bernstein in London, said today by telephone. “The price is higher than expected, but synergies are also higher than expected.”

Absolut is distributed in the U.S. by Future Brands, a joint venture between Fortune and Vin & Sprit. The vodka is distributed elsewhere by Maxxium, to which both companies also belong along with French cognac maker Remy Cointreau SA and Edrington Group, the Scottish distiller of Famous Grouse and Macallan whiskey. Remy is leaving the venture this year.

U.S. Market

Pernod said that the U.S. agreement between V&S and Fortune Brands is in place until the start of 2012. Pernod plans to exit the Maxxium venture “at the latest” two years after closing the acquisition with “minimal contractual costs.”

The Swedish distiller introduced Absolut in 1979 and now sells almost 11 million cases a year of the vodka, which is made from winter wheat. The U.S. accounts for half of sales. Vin & Sprit has fueled demand with flavored varieties such as raspberry and advertisements designed by artists that began when Andy Warhol painted an Absolut bottle in 1985.

While sales of Absolut gained 9 percent by volume in 2007, Vin & Sprit’s revenue is stagnating as the dollar’s drop erodes the value of U.S. sales on conversion to kronor. Fourth-quarter revenue was little changed at 2.96 billion kronor.

Absolut accounts for about 40 percent of Vin & Sprit’s sales by volume. The rest comes from alcoholic beverages including Plymouth gin, which must be distilled in the English city of the same name, and Cruzan rum, which has been made since 1760 on the Caribbean island of St. Croix. The company also owns the Level, Fris and Luksusowa vodka brands.

JPMorgan Chase & Co., Deutsche Bank AG and PK Partners were Pernod’s financial advisers.

Retailers try new ways to counter soaring rentals

Fashion retailer ETAM Future, a joint venture between the Future Group and French retailer ETAM, has closed three shops in Delhi, Surat and Ahmedabad owing to high rentals.

For the same reason, Liberty Shoes has put plans to launch its high-end brand “Pairs” on hold.

Indiabulls, the new entrant in retail with its brand Trumart, recently closed five stores, one each in Thane, Jaipur and Pune and two in Ahmedabad. The company has opened five new stores (two each in Ahmedabad and Pune and one in Jaipur) with better deals with developers.

Sky-high rentals are forcing retailers to explore new ways to stay afloat. Many have done the obvious thing by shifting to cheaper locations or simply downing their shutters. But others are renegotiating deals with developers to ensure business sustainability.

New deals like longer “rent-free” periods, no “lock-in” clauses in agreements and revenue-sharing deals with developers are becoming common.

“Today, 90 per cent of retailers are not making money. Many of them are earning only half of what they should make to break even. Zooming realty costs is the main culprit,” said a property consultant.

A cross-section of retailers Business Standard spoke to said rentals should account for 10 to 12 per cent of sales to make business sense but now make up 20 to 30 per cent of sales in many cases.

“We have decided not to pay more than 20 per cent of our sales as rent. How can one pay rents that are equivalent to total sales in some high streets?” said Jaydeep Shetty, chief executive of ETAM Future Fashions.

Retailers have started bargaining for more with developers. “We do not sign up for a lock-in period. If you do not make money in a place, what is the point in staying there,” said Subir Ghosh, chief executive of music and lifestyle retailer Planet M.

Most retailers sign up for three-year lock-ins that require them not to vacate the premises in that time-frame.

Revenue-sharing agreements are also catching up as footfalls wane in many malls in the country. French brand Lacoste has already opted for such arrangement with three of its stores.

“As our occupation costs go up, the revenue sharing model can help sustain operations, especially in high streets,” said Vikas Gupta, managing director of Lacoste India.

Retailers that are unwilling to opt for revenue sharing are looking at new retail formats. Arvind Brands, for instance, plans to launch multi-brand stores for its international brands.

“Multi-brand outlets are cost-effective since they make a 10 to 15 per cent difference in sales per square foot. It will also help improve footfalls because many brands are available under one roof,” said J Suresh, chief executive of Arvind Brands.

SEARS Kmart stores to sell appliances

(Reuters) – Retailer Sears Holdings said on Wednesday it plans to sell appliances in more of its Kmart stores and would open more dealer stores this year.

The retailer controlled by hedge fund manager Edward Lampert also said in its annual report filed with the U.S. Securities and Exchange Commission that it expects capital spending this year to be flat with last year’s level.

Sears Holdings, based in Hoffman Estates, Illinois, said earlier this year that it would reorganize into five types of business units: operating, support, online, real estate and brand. The company is also searching for a permanent chief executive.

In the filing, Sears Holdings said it “will continue to explore opportunities to profitably cross-merchandise products and services” between its Kmart and Sears stores.

That includes continuing to roll out home appliances, such as those in Sears’ proprietary Kenmore brand, to more Kmart stores, Appliances, a category in which Sears is the dominant U.S. retailer, accounted for about 15 percent of company revenues during fiscal 2007, the filing said.

As of Feb. 2, the end of fiscal 2007, about 280 Kmart stores were selling major home appliances, the filing said. At the end of fiscal 2005, about 100 Kmarts stores were selling Sears branded products such as tools and appliances.

The company said it opened 40 dealer stores during fiscal 2007, and would open more in rural and urban areas this year. Sears has 857 dealer stores, which sell appliances, electronics, lawn and garden equipment, hardware and car batteries.

Aylwin Lewis, who left as Sears Holdings’ chief executive earlier this year as results weakened, received total compensation of nearly $8.9 million for 2007, up from $4.8 million in fiscal 2006, the company disclosed in its proxy filing on Wednesday.

Sears Holdings shares fell 19 cents to $107.63 on Nasdaq on Wednesday, up 27 percent from a low of $84.72 in January. However, the stock is down about 45 percent from a high of $195.18 in April 2007.

Woolworths Invests in Supply Chain Improvement Technology

Woolworths, Australia and New Zealand’s largest retail group, invested further in its supply chain redevelopment program by adding Software AG business process management” (BPM) capabilities.

Woolworths is also investing in a service-oriented architecture (SOA) registry and governance platform to underpin its overall corporate move towards SOA.

Software AG’s business activity monitoring (BAM) solution, webMethods Optimize, will provide Woolworths with real-time insight into how their supply chain processes are performing, what’s working well, where there may be bottlenecks and why and what can be improved. It will allow Woolworths to create and build process strategies against its business vision, defining and tracking key performance indicators (KPIs) for people, process and system performance throughout their supply chain.

Software AG is also providing CentraSite, which will underpin Woolworths’ entire SOA, including the business activity monitoring component, by providing a registry and repository for SOA artifacts and governance throughout the entire SOA lifecycle.

These investments will assist Woolworths in meeting its strategic goals of enhancing IT and business agility in the face of constant business change.

“webMethods has been a key element in the technology platform that has helped us revolutionise our logistics business. The confidence we gained from that program encouraged us to further leverage our webMethods investment in the areas of SOA and Process. We see this relationship as a strategic one, the strength of which has been further enhanced by the involvement of Software AG,” Woolworths CIO Daniel Beecham said

KFC to launch healthy product range in Thailand

KFC has launched a non-fried chicken menu in Thailand in order to benefit from a growing consumer desire for healthy food choices. The first product to be launched under the range will be the Roasted Wing Hitz, which will be sold for THB49 (USD1.60) for three pieces.

The company said that the new range of products had been created following three years of discussions and investigation by Yum! Brands and KFC’s Thailand-based franchisee, the Central Restaurant Group. To be able to create the new meal options, KFC restaurants in Thailand will have to add new, hi-tech ovens, a step that will cost THB350 million (USD11.4 million), which will be shared between Yum!, THB200 million (USD6.5 million), and the Central Restaurant Group, THB150 million (USD4.9 million).

The launch of the new menu items will occur in conjunction with the introduction of a new uniform, which will be green and orange rather than red, which will cost THB25 million (USD817,657) and a new slogan: ‘Live The Real Tasty Life’. To raise awareness of the move, KFC is going to advertise on TV, outdoor and through events. The Central Restaurant Group is hoping that the changes will see customers double the number of visits they make on average to KFC outlets. Commenting on the development, the marketing director for KFC at Yum Restaurants International (Thailand), Waewkanee Assoratgoon, said: “Customers aged 20-29 are worried about high calories in fried food, because it might make them fat and less beautiful. Meanwhile, customers aged 40-50 are also highly concerned about that but for the different reason of health problems.”

Strong showing by new stores boosts retail giant Laura Ashley

People still think of Laura Ashley as a clothing retailer but this is far from the truth. Less than one fifth of the company’s sales now come from clothing, with the vast bulk coming from furniture, home accessories and wallpaper.

It is the retailer’s exposure to the homeware sector that led to an uninspiring like-for-like sales figure when the company released its full year results yesterday. Like-for-like sales fell by 8.7pc over the year to the end of January and have continued at a similarly depressed level into the new financial year. As John Lewis and Marks & Spencer have already said, furniture sales are very soft at the moment.

However, despite this, Laura Ashley managed to report a 62pc leap in pretax profits due to margin improvements and strong sales growth from stores that have been open for less than a year.

The retailer, which is controlled by Malaysia’s MUI Group, was also able to double its total dividend to 2p.

We think that the shares – trading at 23p – are worth picking up. Not only are they well down from last summer’s five-year high of 30p, but there should be more growth to come.

There is also the chance that Laura Ashley could pounce on a rival. The chain has been slowly building a stake in Moss Bros, the troubled menswear retailer. It was keeping silent about its intentions yesterday but observers think it could make a bid.

For its growth prospects, ungeared balance sheet, strong cash generation and possible role as a sector consolidator, we think the shares are a buy.

Major Supermarket giants force higher grocery prices: association

The market domination of supermarket giants Woolworths and Coles means consumers faced higher prices, the chairman of the National Association of Retail Grocers of Australia says.

John Cummings, who is also a part-owner of three independent Perth supermarkets in Perth, said grocery suppliers were also “being done over on a daily basis” due to a lack of competition in the grocery sector.

Speaking today at the National Press Club in Canberra, Mr Cummings said the dominance of the big two had grown to such an extent that some analysts estimated their combined sales now accounted for close to 40 cents of every retail dollar spent in Australia.

He said the market share enjoyed by Woolworths and Coles, estimated to be close to 80 per cent, was unparalleled anywhere else in the developed world, adding that in areas where only Coles and Woolworths operated, prices were usually higher.

“Surely no-one believes that the cheapest petrol can be bought in a town or suburb where there is only one service station, no matter what the brand of petrol sold,” Mr Cummings said.

“Likewise, I would contend if you want cheap bread you will find the cheapest where there is a Coles, a Woolworths, and Aldi and a couple of large independent stores in close proximity.”

Mr Cummings said that in a recent trip to Sydney, he priced a basket of goods at a shopping centre where only Coles and Woolworths operated.

He said the prices of the goods were the same in both stores but five per cent higher than in his own stores and Woolworths and Coles stores in Perth. Suppliers were also at the mercy of Coles and Woolworths, he said.

“… manufacturers of our foods in Australia are being done over on a daily basis by the practices of those two companies,” he said.

“In its submission to the Australian Competition and Consumer Commission inquiry, George Weston Foods pointed out that the increasing introduction of private label products by the chains has put pressure on Australian food and grocery manufacturers.”

“They acknowledged that all of their brands were at risk of being delisted by Woolworths or Coles, and that many enduring national brands are disappearing because of the exercise of marker power by the two supermarket chains.”

He said the current inquiry into grocery prices being conducted by the Commission would undoubtedly receive mixed messages regarding pricing and pricing practices around Australia.

But he also suggested the Commission had so far failed in its responsibility to ensure and encourage competition grocery markets.

“I think in that instance they have failed, I don’t think you can look at it any other way.”

“As a matter of fact, it would appear that the regulator has been sitting in the stands cheering on Woolworths and Coles since 1974 as the growth in market share has been constant and consistent.”

Woolworths, however, disputes the claim it and Coles enjoy an 80 per cent share of the Australian grocery market, saying their combined share was closer to 50 per cent.

“We calculate our (market share) to be about 30 per cent and Coles’ to be probably be under 25 per cent,” Woolworths spokesperson Clare Buchanan said.

Ms Buchanan said the figure of 80 per cent stemmed from data supplied to marketing information company ACNielsen.

But she said that only three firms – Woolworths, Coles and Metcash – had supplied the relevant data to ACNielsen.

“So if you want to say we have 80 per cent of the market, that’s fine, but that’s only 80 per cent of Coles, Woolworths and Metcash (sales).”

“It’s a very, very narrow determination that actually misses a huge chunk of the food retail market.”

Related Articles : IGD’s Latest Insight into Retail Developments in Australia

Sainsbury’s strikes biggest property deal

J Sainsbury, Britain’s third-largest supermarket chain, has struck a £1.2 billion joint venture property deal with British Land in its biggest step so far to unlock greater shareholder value from its vast store estate.

The group has created a 50-50 venture that will hold and develop 39 superstores over the next decade.

Justin King, Sainsbury’s chief executive, said that the move marked an “excellent opportunity” to increase the chain’s interest in the future expansion and development of its most important stores.

The joint venture deal came alongside better-than-expected like-for-like sales growth of 4.1 per cent for the 12 weeks to March 22.

The growth, excluding fuel, for the fourth quarter means that Sainsbury’s achieved a like-for-like increase of 3.9 per cent for the past financial year and is on track for pre-tax profits of about £480 million.

Sainsbury’s has generated an additional £2.7 billion of sales since March 2005, beating its goal of £2.5 billion.

Mr King hailed this as an “outstanding success” and hinted that it was Tesco rather than Sainsbury’s that was losing out to the resurgence of Wm Morrison in the South of England.

He said: “The South has one of our strongest areas. A lot of Morrison’s growth is from capturing back business it lost two or three years ago. At the time people said most of that went to Tesco.”

He added: “The achievements we have made during our Making Sainsbury’s Great Again plan are significant and I am delighted with our progress.

“The market remains competitive but, as we enter our fourth year of growth, the improvements we have made to date position us well to meet the demands of what continues to be a challenging environment.”

The British Land joint venture effectively allows the supermarket to manage store extensions better and gain a greater share of any rising value of its estate.

British Land owned the freehold to all 39 stores before today’s agreement.

About 25 sites will be extended by 500,000 sq ft and Sainsbury’s is investing £273 million in the venture.

One of the stores is a Waitrose supermarket, but Sainsbury’s will have no say over the running of the site.

Today’s move comes after increasing pressure from shareholders, such as Robert Tchenguiz, the property tycoon, for Sainsbury’s to unlock the value of its property estate after two failed bids for the supermarket last year.

Shares in the group have fallen by nearly 25 per cent since the start of the year to a low of 317.5p, making Sainsbury’s the worst-performing stock in the sector.

The shares opened this morning up almost 2 per cent at 343p.

Both the bids mooted by the CVC-led private equity consortium and the Qatari Investment Authority were set at a price of 600p a share.

TRAI’s views sought on allowing MVNO

New Delhi: The Department of Telecom has asked the Telecom Regulatory Authority of India to suggest a policy framework for introducing Mobile Virtual Network Operators in the country.
 
The move follows controversy around the launch of Virgin Mobile through a franchisee agreement with Tata Teleservices. While existing GSM operators have asked DoT to examine the fine print of the agreement, Tatas have denied that it was an MVNO.

The move from DoT is an attempt to put the controversy to rest. Once TRAI suggests the framework for bringing in MVNO, DoT is likely to permit it.

Related Article:Virtual Telephony is the new buzz

Rich-media Ad firm EyeWonder to establish it’s European headquarters in Dublin

A US-based digital media firm that provides the creative Flash environment used by many of the world’s largest ad agencies is to establish a European headquarters in Dublin.

The Atlanta, Georgia-headquartered EyeWonder is to create 31 positions for third-level graduates.

EyeWonder targets online advertising agencies and large publishers, focusing on those whose spending typically leans more heavily to video and other rich media.

“EyeWonder will represent the first company within this sector of the digital media space to locate in Ireland and the company represents the high value added activities associated with this industry,” said the Minister for Enterprise, Trade and Employment, Micheál Martin TD.

EyeWonder’s proprietary authoring tool AdWonder Flash Component has been adopted by many creative agencies for formatting online and rich-media advertisements.

The latest version, AdWonder 9.0, is designed to give the creative and production teams within advertising agencies the power to design, build, preview, test and approve any interactive ad campaign without ever leaving the Flash creative environment.

This will significantly reduce the time it takes to get even the most sophisticated video and rich-media ads live across the internet. This technology also has a full video expandable ad capability, which allows banner ads with video to be extended to near full screen for enhanced interactivity and branding.

The AdWonder technology is the choice of eight out of 10 of the top agencies in the US and is used by 400 agencies worldwide.

EyeWonder’s Ireland and UK managing director, Barry Bedford, said Ireland was chosen because of the availability of skilled and experienced online and offline advertising skills, as well as the nation’s emerging digital cluster.

“We have established this sales and customer support operation to provide a better service to our international customers, and Dublin offers an ideal location due to its excellent infrastructure, multilingual capability, highly skilled workforce and ease of doing business,” Bedford explained.