Sunday 22 September 2019

Irish interests must be on guard as Pernod comes under attack

Share price: €142.30

64pc rise in last five years

An employee passes American oak barrels containing Jameson whiskey, produced by Irish Distillers Ltd, at the Pernod-Ricard SA distillery in Midleton. Photo: Bloomberg
An employee passes American oak barrels containing Jameson whiskey, produced by Irish Distillers Ltd, at the Pernod-Ricard SA distillery in Midleton. Photo: Bloomberg

John Lynch

When the French drinks group Pernod Ricard took over Irish Distillers 30 years ago, the company was the only producer of Irish whiskey in the country. Today, you can barely throw a stick without hitting at least half-a-dozen Irish whiskey distilleries.

It has become one of the most fashionable products in the potable spirits sector worldwide. All credit is due to Pernod Ricard, because its spectacularly energetic promotion of Jameson has greatly helped that cause. It turned Jameson into the fourth best-selling whiskey brand in the world - that's whiskey with or without an 'e'. Latest sales have topped 7.3 million cases, a 70pc growth in the last five years alone.

But for Pernod's senior management, this Christmas is a mixed one. There has been a recent turn of events which has put the French giant right smack in the centre of the global drinks industry spotlight and there will be more than a passing Irish interest in how this new development pans out.

The very aggressive activist US hedge fund Elliott Management has spent €1bn buying 2.5pc of the French company and has opened up on Pernod management with both barrels. Elliott boss Paul Singer has called for an overhaul of the board to address what he describes as perennial under-performance. He has demanded big cost cuts and, as Elliott intervention has done in the past, the action demands for a sale or break-up of the company. The Ricard family still holds a 16pc stake in the enterprise and 22pc of the voting rights.

If there is a French word for 'shove off', then that is what the management is telling Mr Singer at the moment while noting, with Gallic politeness, that it welcomes a 'constructive input' from shareholders. But activist shareholder bombshells are seldom resolved quickly. This one is going to create its own momentum, which Pernod Ricard consumers (they include lovers of a 'drop of Jemmy', Absolut vodka drinkers, sippers of Martel cognac, imbibers of Chivas Regal scotch and devotees of Olmeca tequila) will all follow with fascination.

Apart from the domestic Irish interest, what makes this targeting of Pernod so interesting is that it is the first time billionaire Singer has set his sights on a company in France and the French have never been shy about contriving ways to repel unwelcome attention from abroad.

The French government, some 15 years ago, cited a 'strategic national interest' to protect Danone from an American takeover. Back home those who remember Pernod's titanic efforts to act the 'white knight' and ensure Irish Distillers wouldn't fall into the arms of British drinks group Grand Met will also recall the esteem and sense of protection which Pernod enjoyed at home. In addition, Elliott is effectively taking on a family, which is never easy.

The present Pernod chief executive is Alexandre Ricard, the third generation of the family to head the business. Meanwhile half the present board are family members. Elliott has proved in the past it has the stomach for a fight, but it is not going to be easy. Already the second largest shareholder, the Belgian firm Groupe Bruxelles Lambert, has pitched in with support for the company.

Paul Singer has shown in the past that he can 'spot them'. Pernod has 13 strategic international brands, operating in 86 countries, with 90 or so production sites around the world. The international brands, alongside Jameson, are Absolut (its biggest brand), Martell, Malibu and Ballatines, employing 19,000 with a stock market value of €39bn. It also owns the Jacob's Creek wine business.

Given Elliott's unwelcome attention, one would have expected that shareholders had been feeling stroppy. But that has not been the case. The shares rose by 19pc last year and 64pc in the last five years. They reached a record high of €147 in June of this year but have eased back slightly to €142.30.

The shares are worth a punt and will give a sideline view of the inevitable bust up between Elliot, the family and Macron's government. Let's hope the mandarins in Merrion Street are watching after Irish interests.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.

Irish Independent

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