Activist investor takes stake in Pernod Ricard
The world’s largest activist hedge fund, Elliott Management Corporation, has taken a stake of more than 2.5% in Pernod Ricard in a bid to improve the French group’s market share.
US-headquartered Elliott Management Corporation, which manages assets worth approximately US$35 billion, said that despite the “favourable economic backdrop for the spirits industry over the last decade”, Pernod Ricard has lost market share in key areas and “underperformed its peers on several metrics”.
Operating margins at Pernod have a five-percentage point disadvantage to rival Diageo after “successive operational improvement plans failed to generate operating leverage”, according to Elliott.
The firm also said Pernod’s €6bn (US$6.8bn) acquisition of Absolut vodka in 2008 “fell short of expectations”. The brand, which sells 11.3 million cases globally, has struggled to claw back growth in its key US market in recent years.
Meanwhile, “inadequate” corporate governance and a “lack of outside perspectives” at the Glenlivet Scotch and Martell Cognac maker has “contributed to this underperformance”.
“In Elliott’s view, addressing these deficiencies could help generate significant value for all stakeholders,” the group said in a statement this morning.
Nonetheless, Elliott said Pernod Ricard – the world’s second largest alcoholic drinks group – “offers one of the most attractive investment opportunities in the industry”.
Elliott has met with group CEO Alexandre Ricard and shared its views with the company’s board of directors. Its recommendations include launching a “more ambitious operation improvement plan” to close the profitability gap with competitors, and aligning its corporate governance with “best-in-class peers”.
“Pernod’s journey from a small local niche player to an iconic French multinational leader has been impressive, and the Ricard family deserves credit for supporting the company’s growth over the years,” Elliott said in a statement.
“Elliott believes operational and governance improvements would allow Pernod to unlock much of the value that the company is capable of delivering, improving the strength and sustainability of the company for all stakeholders.”
Headed by Wall Street billionaire Paul Singer, Elliott is known for its aggressive campaigns to shake up the companies it invests in.
The founding family of Pernod Ricard remains its largest shareholder with a 14.2% stake. Belgian investment firm Groupe Bruxelles Lambert owns a 7.5% stake in the group, which reported a 6% organic sales increase to €8.98bn (US$10.2bn) in the year to 30 June 2018.