Pernod ends distribution agreement and sells Cruzan

Pernod Ricard has agreed to prematurely terminate the distribution agreement for Vin & Sprit brands in the US and sell Cruzan rum to Fortune. Fortune will receive compensation to the tune of US$230 million in pre-tax proceeds, and then pay US$100 million back to Pernod to acquire Cruzan.

Future Brands, a joint venture company between V&S and Fortune Brands, did have a contract to distribute V&S brands until February 2012, but this has now been terminated early. In addition, V&S will also stop being a shareholder in Future Brands.

The Pernod Ricard press release stated that the cost of exiting the distribution agreement early would be offset by "The savings generated by stopping the payments of commissions to Future Brands, the quicker than anticipated implementation of cost synergies on our North American structures and the very positive impact of an immediate combination of our brand portfolios in the US."

Commenting on the agreement, Patrick Ricard stated: "The immediate takeover of Absolut distribution in the US by Pernod Ricard USA is excellent news for the group. We will now market and distribute the leading imported spirit and premium vodka in the US, which greatly enhances our position. I also wish all the best and a continued success in the future for the Cruzan rum brand and the Cruzan teams within Fortune Brands.”

Cruzan had been acquired in 2005 by V&S and sold more than 750,000 9L cases in 2007.

Fortune Brands said of the deal: "This is a win-win agreement that provides significant benefits to Fortune Brands," said Bruce Carbonari, president and CEO of Fortune Brands. "In exchange for accelerating the end of our US distribution agreement with Absolut, we’ll receive a cash payment of $230 million. We’re also pleased that we’ll acquire a fast-growing premium rum brand."

With regards to the deal ending in 2008 rather than 2012, Carbonari added: "This transaction serves shareholders significantly better than allowing the distribution partnership to expire in 2012. The termination payment from Pernod more than compensates for our higher costs of distribution over the remaining term of the joint venture agreement. From a strategic perspective, we’ll also benefit from a dedicated US sales force. And we see significant upside potential over the long term from the Cruzan rum brand."

Alexis Hercules 29/08/08