Thursday 3 April 2014

JD...and Cognac

In discreet Mayfair hotel bars men in dark glasses are talking about Remy Cointreau. But it's not because they like drinking expensive Cognac.

There is a theory rattling around the hedge fund districts of London, Paris and Geneva that Remy Cointreau is a takeover target for US drinks giant Brown-Forman, owner of Tennessee whiskey Jack Daniel's.

The idea is that Brown-Forman is desperate to get hold of Remy Cointreau because it doesn't want to get left behind in the global consolidation game that re-ignited at the beginning of the year when Japan's Suntory snapped up US bourbon specialist Beam for $16 billion.

Since the Beam deal Remy Cointreau shares have been under pressure on fears the slowdown in China will continue to hit the French company's Cognac sales.

In early January, the maker of the luxury brand Louis XIII cognac issued a profit warning, saying sales fell sharply during the last three months of 2013 as Chinese demand for its products continued to shrink. The worse-than-expected financial performance has triggered several analysts downgrades.

Now, then, may be an 'opportune' time for Brown-Forman to strike at Remy Cointreau - which can trace its roots back to the Remy Martin business founded in 1724 - as the French company's stock is in the doldrums.

I checked the theory out with excellent sources. In some ways, the tale is credible. I understand that over the last couple of months Brown-Forman has been working with a few investment banks, including Goldman Sachs, on how it might be able to purchase Remy Cointreau.

Tentative discussions have been held between investment banking advisers to both companies, with Lazard said to be representing Remy Cointreau and its controlling shareholders.

However, that is about as advanced as the potential "deal" has got to at the moment, said sources close to the matter. And I expect it will be difficult to move the transaction further forward.

This is because France's Heriard Dubreuil family speak for about 60pc of the listed company, populate the board and manage the business. Francois Heriard Dubreuil, the chairman, took control as chief executive after Frederic Plfanz resigned earlier in the year.

Not a lot is known about the Heriard Dubreuil family as its members are highly secretive although not necessarily averse to M&A. Indeed, the family backed the merger of its Remy Martin business with Cointreau, which was owned by the Cointreau family, in the early 1990s.    

However, given the Heriard Dubreuil members have been involved with Remy Cointreau for several decades, I understand it will take a huge offer from Brown-Forman - in the region of 85 Euros a share - just to even get the family to the negotiating table, especially as there is a social stigma in France about selling French companies to "les Americains".

Bonne chance, Brown-Forman.

Remy Cointreau and Brown-Forman both declined to comment.

UPDATE: Last night some news aggregation services presented this story in a much "harder" manner than I originally published. I would just like to make it clear to Betaville readers, that as far as I am aware - and to be clear, this is unconfirmed speculation - Brown-Forman has just been looking Remy Cointreau via certain advisers and that is about it. There are no formal discussions taking place between the companies and the likelihood of a deal at the moment is very slim.  

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