Pernod Ricard buys Absolut for $8.3 billion

Pernod Ricard moved closer to bumping Diageo deoas the world's biggest spirits player with a deal announced Monday to acquire the Swedish state-owned parent of Absolut vodka for $8.3 billion.

The French spirits company outbid several others for the world's best-selling premium vodka, including U.S.-based Fortune Brands fo, Absolut's current distributor.

Pernod will climb from fourth to second among global spirits sellers with its purchase of Vin & Sprit. Pernod, which bought Allied Domecq for $16 billion in 2005, has been on a quest to be tops in the $200 billion worldwide booze business.

"Our intention is to grow and become the leader," said Pierre Pringuet, Pernod Ricard's managing director, in a conference call.

The company will move within striking distance of Diageo, owner of Smirnoff vodka, with its annual volume of 93 million cases. Pernod Ricard's volume will rise from 75 million cases to 91 million, with Absolut and V&S's Cruzan rum and Plymouth gin.

The deal gives Pernod outright ownership and control of Absolut in a complicated industry in which the brand owner often is different from the marketer and distributor.

Absolut has worldwide volume of 11 million cases — 6 million abroad and 5 million in the USA.

Absolut sales were up 9% worldwide last year from 2006. But growth has slowed as more expensive brands such as Grey Goose, bought for $2 billion by Bacardi in 2004, have become trendy. U.S. sales of premium spirits such as Absolut climbed just 2% in 2007 vs. 2006, while more upscale spirits grew 11%, according to the Distilled Spirits Council of the United States.

Vodka is key for the industry, last year generating 25%, or 51 million cases, of volume and 24%, or $4.3 billion, of revenue.

Pernod executives say there is still growth potential in Absolut, which pioneered vodka as a premium drink more than 20 years ago.

"We think we can bolster Absolut, but we think Absolut will also bolster us," Pringuet says. "Absolut will provide a lot to us in the U.S., and it's a great key to opening doors in the many other markets."

Pernod distributes Stolichnaya vodka but expects to have to end that deal for regulatory approval for Absolut.

"It's strictly impossible to keep Stolichnaya, so we have to relinquish it," said Emmanuel Babeau, Pernod's deputy managing director of finance.

Pernod beat out Bacardi, Swedish holding company Investor and Fortune Brands for Absolut. The purchase does not include V&S's 10% stake in Fortune, whose distribution rights run through 2012. Pernod is expected to seek a deal to acquire the rights earlier.

V&S was put on the block last year as Sweden moved to privatize state-run businesses to pay off debt.

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