UPDATE 2-Russian billionaire offers CEDC debt relief for bigger stake

Thu Feb 2, 2012 12:25pm EST

* Alliance with CEDC comprises two separate transactions

* Russian Standard says alliance would help CEDC with 2013 debt

* Shares jump as much as 28 pct

By Abhishek Takle

Feb 2 (Reuters) - Central European Distribution Corp's largest shareholder Roustam Tariko offered to exchange debt owed to him and hand over rights to some vodka brands for a bigger stake in the company, in a deal that could see the Russian billionaire own a third of the Polish vodka maker.

The news drove CEDC shares up as much as 28 percent to $5.68. A lack of a clear plan to pay back over $300 million in debt maturing next year has hammered the stock, which lost more than 80 percent of its value through 2011.

The deal would see Tariko convert $103 million in CEDC debt maturing next year into common shares at an exchange price of $7.00 per share.

The investor also offered to assist the company in addressing the remaining $207 million in debt maturing 2013, by potentially extending a backstop credit facility to CEDC.

Tariko's proposal will see him take control of the company's Russian management and throws a lifeline to the maker of Absolwent and Parliament vodka whose executives have been criticized for letting the company lose share in its largest market.

"I think investors will welcome (new management in Russia)," Raiffeisen Centrobank analyst Jakub Krawczyk told Reuters.

"Tariko is a hugely important financial person, well connected and I'm sure he is capable of either helping out even by his presence, or his name or his contacts, or actually finding the right people to manage the Russian operations."

CEDC said in an emailed statement that it has been in talks with Russian Standard for the last few months and it would consider the proposal as well as other options it is currently exploring.

Last month, Tariko, whose fortune is estimated at $1.9 billion by Forbes magazine, told Reuters that his Russian Standard Group plans to take management control of CEDC as part of an international expansion strategy.

In a letter dated Feb. 1, Tariko detailed two transactions as a result of which Russian Standard's ownership in CEDC would ultimately grow to nearly 33 percent from the 9.9 percent it currently holds, according to a regulatory filing.

Tariko also offered CEDC access to a portfolio of brands held by his Roust Inc which imports brands like Remy Martin, Cointreau and Whyte & Mackay.

"As is customary in such situations, Russian Standard would require board representation and minority protections in order to safeguard its investment and its position in the company," Tariko said in the letter.

Such protections would include the right to appoint three directors to CEDC's board and the right to appoint key members of the company's Russian management team, Tariko said.

"I think people have been expecting this kind of move from him. It was just a question of time and a question of details of his proposal," analyst Krawczyk said.

CEDC shares were up 19 percent at $5.32 in midday trading on Thursday on the Nasdaq.