Billionaire Paul Singer's Elliott Management pounced on another European corporate icon, building a stake in Pernod Ricard in an effort to boost returns and sharpen governance at the world's second-largest distiller.
The activist firm wants the French company to lift profit margins at least to rival Diageo’s levels, saving €500 million a year by eliminating back-office duplication, cutting jobs in France and the US and other measures, sources said.
Eventual options could include pushing for a sale of the company, which has a market value of nearly €40 billion, the sources said. Elliott has no intention of mounting a proxy contest, they said.
Shares of the owner of Jameson rose as much as 5.8 per cent in Paris, the biggest gain since 2010, after Elliott said it held more than 2.5 per cent. The announcement comes just days after people familiar with the situation said the firm accumulated a stake in Germany's Bayer to press management to consider a split.
Pernod Ricard offers one of the industry's most attractive investment opportunities because its "inadequate corporate governance and a lack of outside perspectives" have led to lacklustre performance, Elliott said. The firm cited the disappointing takeover of Absolut vodka and operating margins lower than those of Diageo.
Pernod said it has lifted sales and profits over the past year with growth across regions and product categories. Chief executive Alexandre Ricard said the company has created more than €11 billion of value over the last three years, with a 38 per cent share-price increase that's outperformed France's Cac 40 index of large companies and the Stoxx 600 Food and Beverage index of European peers.
“We are a group with strong family values committed to long-term value creation,” he said in a statement. “Our strategy is working and is the right one, combining short-term profitability and sustainable, profitable and responsible growth under a consistent and long-term road map.”
Facing off with Elliott ramps up the challenges facing the chief executive, the third member of the co-founding Ricard family to run the company in as many generations. Elliott’s arrival is one of the biggest potential threats to the ownership structure since Ricard merged with Pernod about four decades ago, bringing together France’s best-known makers of the anise-flavoured spirit known as pastis.
Family largest shareholder
The family is the largest shareholder, with a 16 per cent stake and 22 per cent of voting rights – not enough to block a deal though it could help in mounting a defence. Other big shareholders include Groupe Bruxelles Lambert, the investment firm formerly headed by the recently deceased Albert Frere, and Caisse des Depots et Consignations, which invests for the French state.
France wants domestic companies such as Pernod Ricard to have “stable and long-term” shareholders rather than be placed under pressure for the sake of short-term profitability, a Finance Ministry official said Wednesday.
Elliott has taken stakes in European industrial titans such as Thyssenkrupp and engineering firm GEA Group. It has also halted a restructuring plan at South Korea's Hyundai and is locked in a fight with media conglomerate Vivendi overboard control of Telecom Italia, where the French company is the largest shareholder.
A majority of the supervisory board has Ricard family ties. Elliott plans to push the company to appoint a more diverse and international board, a person familiar with the situation said. Shareholder advisory firm Glass Lewis and Co. has noted that eight of Pernod Ricard’s 11 board members are either affiliated with the company or insiders, and that the chief executive and chairman roles aren’t separated. – Bloomberg
