Bloomberg News

Pernod Indicates Cuervo Interest Amid Intent to Reduce Debt

February 14, 2013

Pernod Ricard SA, the maker of Absolut vodka, indicated an interest in acquiring Jose Cuervo after its biggest competitor failed to buy the tequila brand, though downplayed the prospect of any imminent deal.

The Paris-based distiller “would be prepared to sit down and talk about an acquisition” of Cuervo, Chief Executive Officer Pierre Pringuet said at a press conference today. Still, Pernod’s priority is paying down debt and major acquisitions will “have to wait another two-to-three years,” he said.

Diageo Plc, the world’s largest distiller, abandoned negotiations to acquire Cuervo in December and said it wouldn’t renew an agreement to distribute the spirit globally. The brand, owned by Mexico’s Beckmann family, may have cost as much as $3 billion, analysts estimated at the time.

Pernod Ricard, which also makes Martell cognac and Chivas Regal whisky, bought a cognac producer earlier this month to boost supplies and production of the popular spirit as demand booms in Asia. The company is open to similar “bolt-on” acquisitions, so long as they don’t affect Pernod’s investment- grade debt rating, Gilles Bogaert, the company’s chief financial officer, said today in an interview with Bloomberg News.

Pernod has the lowest investment-grade rating at both Moody’s Investors Service and Standard & Poor’s.

The ratio of net debt to earnings before interest, taxation, depreciation and amortization was stable at 3.8 times at the end of December, the company said today as it reported first-half sales and earnings growth that beat estimates. Total debt was 9.15 billion euros, with a reduction of 215 million euros helped by favorable foreign-exchange movements.

Euro Strength

Pernod rose as much as 3.6 percent in Paris trading and was up 2.8 percent at 96.65 euros at 4:04 p.m.

The distiller expects a “slightly positive” effect on results this year from currency effects, particularly the strength of the euro, Bogaert said. After gaining 8.3 percent against the dollar in the past six months, the European currency may be “a bit overvalued,” the executive said, even as the movement implies renewed confidence in the region.

Pernod now has more than 80 percent of its debt in bonds, and could increase that proportion further compared with loans, even though the company benefits from the flexibility of loans, Bogaert said. It could return to the bond market, though has no need to refinance any of its debt until 2015, it said.

“Financial conditions are excellent, and markets are open to us,” the executive said.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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