US hedge fund takes stake in Pernod Ricard

US-based hedge fund Elliott Management has taken a stake “in excess of 2.5%” in Pernod Ricard, noting in a statement that the French drinks group has “significant potential for improvement”.

Image: Eoin Holland

In a statement released today (12 December), Elliott Management stated that Pernod Ricard had lost market share “across key segments within its portfolio”. It added that operating margins were at “a five-percentage point discount” compared to rival drinks corporation, Diageo.

The hedge fund also noted that Pernod Ricard’s track record in merger and acquisitions had been “disappointing,” with its record €6 billion acquisition of the Vin & Sprit Group, the former owner of Absolut Vodka, from the Swedish government in 2008, “falling short of expectations”.

As a result, Elliott stated, total shareholder return had underperformed in comparison to most of its competitors with Pernod Ricard “notably ranking last among its peer set over the last decade”. The US company blamed Pernod Ricard’s underperformance on “inadequate corporate governance” and the “lack of outside perspectives”.

While noting this, Elliott did nevertheless praise the work of the Ricard family, who remain the largest shareholder with 14.2% of the shares and 20.1% of the voting rights, for their role in promoting the growth of the French business.

The hedge fund met with the CEO of Pernod Ricard, Alexandre Ricard, at the company’s headquarters in Paris last month and has since written to its board “to share its analysis and views on value creation”. This includes “launching a more ambitious operational improvement plan” and “aligning corporate governance with best-in-class peers”.

Investment firm, Groupe Bruxelles Lambert, formerly headed up by the late Albert Frère, also has a 7.5% stake in Pernod Ricard, which it acquired in 2006. Following news of Elliott’s investment, shares in Pernod Ricard rose by as much as 4.3%.

In October this year, Pernod Ricard reported a “particularly good start” to its fiscal year after first quarter organic sales jumped 10.4% to €2.387 billion. However, reported growth was slower than expected at 7.2% due to “uncertain geopolitical and monetary environment”, according to CEO Alexandre Ricard.

Elliott Management was founded by American billionaire Paul Singer in 1977. It has total assets of US$35 billion.