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Paul Singer's Elliott pounces on world's second largest distiller
BILLIONAIRE Paul Singer's Elliott Management Corp pounced on another European corporate icon, building a stake in Pernod Ricard SA in an effort to boost returns and sharpen governance at the world's second largest distiller.
Shares of the owner of Jameson Irish whiskey rose as much as 4.3 per cent in Paris trading on Wednesday, the biggest gain in more than three years, after the activist investment firm said it held more than 2.5 per cent. The announcement comes just days after people familiar with the situation said Elliott accumulated a stake in Germany's Bayer AG to press management to consider a split.
Pernod Ricard offers one of the industry's most attractive investment opportunities because "inadequate corporate governance and a lack of outside perspectives" have led to lacklustre performance, Elliott said. The firm cited the disappointing takeover of Absolut and operating margins lower than those of rival Diageo Plc. Eventual options could include a sale of the French company, a person familiar with the situation said.
Facing off with Elliott could be a challenge for chief executive officer Alexandre Ricard, the third-generation member of one of the founding families to run the company. The activist's arrival is one of the biggest potential threats to the ownership structure since Ricard merged with Pernod about four decades ago in fusion of two makers of the French anise-flavoured spirit pastis.
Elliott has been building the stake over the past year and its London-based investment team has met with Pernod's management in recent months, according to the person familiar with the situation. The discussions are said to have focused on efforts to step up cost-cutting, as well as market-share losses in vodka.
"We would see any improvement as a result of Elliott's stake as a material positive for the company," James Edwardes Jones, an analyst at RBC Capital Markets, said in a note to clients. For now, "we continue to think the valuation does not provide an attractive entry point". Through Tuesday, Pernod Ricard's stock had gained 6.5 per cent this year, compared with 3.7 per cent for Diageo.
Elliott has taken stakes in European industrial titans such as Thyssenkrupp AG and engineering firm GEA Group AG. It has also halted a restructuring plan at South Korea's Hyundai Motor Group and is locked in a fight with media conglomerate Vivendi SA over board control of Telecom Italia SpA, where the French company is the largest shareholder.
The founding Ricard family owns about 16 per cent of the distiller, the biggest stake, and a majority of the supervisory board has family ties.
Elliott plans to push the company to appoint a more diverse and international board, the person familiar with the situation said. If that and other steps don't produce higher margins, the firm will press for further ways of unlocking value, including a sale, the person said.
Pernod Ricard has moved to divest less profitable brands such as the Domecq brandies, which it's sold to Emperador, as well as Fris vodka and Paddy Irish whiskey. It's also considering selling the Wall Street and Natu Nobilis whiskey brands in Latin America.
Groupe Bruxelles Lambert, the investment firm formerly headed by the recently deceased Albert Frere, is one of Pernod Ricard's largest investors, holding about 7.5 per cent of the shares. GBL has close ties to Bernard Arnault, the billionaire CEO of LVMH, which owns brands such as Hennessy cognac and Belvedere vodka that compete with Pernod Ricard. BLOOMBERG