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Pernod brings down cost of borrowing
“standfirst”>
When Pernod Ricard announced in early April that it was calling on its shareholders to provide more than €1bn in capital through a rights issue, the market blinked.
The company had no debt maturing until the middle of next year, repayment of which would be covered by free cashflow and the €1bn programme of non-core disposals already announced, so what had gone wrong?
On the day of the announcement Pernod Ricard’s shares fell by more than 8% to just €40.69. Were sales falling off a cliff?
On the contrary, they are continuing to grow, albeit at a slower pace and Pierre Pringuet, the new chief executive, points to the success of the rights issue as evidence that shareholders are confident about the group’s prospects. At €26.70 per share, the issue was deeply discounted, but even so, it was oversubscribed by 2.3 times and more than 98% of existing shareholders took up their rights. Given that the Ricard family chose to buy a stake in the company held by Kirin rather than subscribe to the issue, Pringuet is justified in calling it “an outstanding success”. The shares have now risen to about €46, in part reflecting the general market upturn in the past month, but also that investors feel reassured that sales are continuing to grow.
So why did Pernod Ricard want the money? In an exclusive interview with the drinks business, Pringuet said that the rights issue “reduced the cost of borrowing and reduced the borrowing itself”. The move accelerates the process of reducing the group’s €12bn of debt following last year’s takeover of Vin & Sprit. In addition, the programme of non-core disposals to raise a further €1bn has reached some €600 following the sale of Wild Turkey to Campari.
On the remaining €400m, Pringeut said: “Part of it will be industrial or real estate assets, we are not talking only about brands… We will not touch the 15 strategic brands – that would be ridiculous. Nor will we endanger or weaken any of our businesses. There are a lot of local brands that are not global but are of critical importance for a specific market.” Our strategy is to run our own distribution network so that [selling a crucial local brand] would be contradictory.”
Finance on Friday, 15.05.09