Remy Cointreau shares soar on talk of Brown-Forman interest

PARIS Fri Apr 4, 2014 8:59am EDT

A Whiskey tasting station is seen at the Jack Daniel's distillery in Lynchburg, Tennessee May 10, 2011. REUTERS/Martinne Geller

A Whiskey tasting station is seen at the Jack Daniel's distillery in Lynchburg, Tennessee May 10, 2011.

Credit: Reuters/Martinne Geller

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PARIS (Reuters) - Shares in Remy Cointreau (RCOP.PA) surged on Friday on speculation that Brown-Forman (BFb.N), the U.S. maker of Jack Daniel's whiskey, was eyeing the French cognac producer, though prospects of a near-term deal looked slim.

Many drinks groups could afford to buy Remy Cointreau, which has a stock market valuation of 2.9 billion euros ($4.0 billion) against $19 billion for Brown-Forman and is seen as vulnerable at the moment as it grapples with falling sales due to slowing demand in China.

"Remy is definitely being peddled about as there is an opportunity now, it's down on its knees. The timing is right although I still think it's overvalued. I don't think the problems in China are over, it's not hit bottom yet," a banker said.

Remy shares have lost 18 percent since November when the maker of Louis XIII luxury cognac issued a profit warning due to weak demand in China. In January its chief executive quit and it is still searching for a permanent replacement.

Like rivals Diageo (DGE.L) and Pernod Ricard (PERP.PA), Remy has been hit by a government crackdown on luxury gift-giving and personal spending by civil servants in China, as well as by slowing economic growth in the world's second-biggest economy.

Cognac makes up 80 percent of Remy's operating profit and China half of that total.

Remy Cointreau shares rose as much as 10 percent early on Friday before trimming gains to trade up 4.5 percent by 1330

GMT.

Traders cited an article on the British financial blog "Betaville" as the source of the speculation.

Remy Cointreau declined comment. Brown-Forman officials were not immediately available outside business hours in the U.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 U.S. bourbon specialist Beam BEAM.N for $16 billion," the blog said.

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

There were however no formal discussions taking place between the companies, the blog added.

"In this industry everybody talks to everybody. It would not be surprising if bankers talked to bankers but it may be all very preliminary," said Bernstein analyst Trevor Stirling.

Another banker said that banks were trying to persuade Remy to sell "but there are no signs that they're sellers".

A GOOD MATCH

Remy was also likely to attract interest from the likes of Japan's Suntory and privately-held Bacardi, the second banker said.

Industry bankers and analysts said Remy and Brown-Forman would be a good match, since they are both family-controlled, both derive a significant proportion of their profit from a single, brown spirits brand, and they complement each other geographically.

Brown-Forman, based in Louisville, Kentucky is best known for its Jack Daniel's Tennessee whiskey, which accounts for about half its revenue, but has smaller brands including Southern Comfort and Herradura tequila.

It is itself often seen as a target for the likes of Diageo, Pernod Ricard or Bacardi.

In its latest quarter Brown-Forman reported strong sales growth in China despite the anti-extravagance campaign. Analysts said this was partly due to Jack Daniel's being a "premium" brand rather than an "ultra luxury" brand like Louis XIII.

It was unclear if the Herard Dubreuil family, which controls over 60 percent of Remy's voting rights, would be a seller.

"The family would be a reluctant seller but if the price was right that could change. At the moment they are 100 percent focused on the cognac recovery," said Bernstein's Stirling.

Societe Generale analysts said in a note on Friday that given the attractiveness of Remy's portfolio, which includes century-old cognac eaux de vie inventories, a deal could fetch multiple of 22 times estimated 2014 EBITDA, or 85 euros per share, topping the 20 times of the Suntory/Beam deal.

A very complicated shareholding structure with different family members holding different stakes may also be a hurdle to a deal with some family members likely to want cash.

Societe Generale analysts said it was likely a future deal would be a combination of cash and shares.

($1 = 0.7291 Euros)

(Reporting by Alistair Smout, Dominique Vidalon, Martinne Geller, Anjuli Davies; Editing by Catherine Evans and John Stonestreet)

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