Pernod wins Absolut vodka

By James Regan and Niklas Pollard

PARIS/STOCKHOLM (Reuters) - France's Pernod Ricard (PERP.PA) has won the battle to buy the maker of Absolut vodka, in a costly 5.63 billion euro ($8.9 billion) deal that brings it nearly level in sales with global spirits leader Diageo (DGE.L).

Pernod shares stumbled as the market baulked at the price, which was far higher than the $6-7 billion estimated by the market even before the worst of the past few weeks' financial turmoil, and at the hefty debt needed for the deal.

Pernod beat the favorite, Jim Beam bourbon maker Fortune Brands (FO.N), to win control of Sweden's Vin & Sprit VSG.UL, owner of the fast-growing Absolut brand, and gain a bigger presence in the U.S.

Diageo had pulled out of the auction in February.

Analysts at HSBC called the deal a "master stroke", but said the high cost proved there were no cheap opportunities left in the rapidly consolidating drinks sector.

Pernod shares were down 4.5 percent at 65.05 euros at 11:25 a.m. EDT. The stock has fallen 18 percent this year, underperforming the food and beverage sector .SX3P by almost 8 percent.

"The combination of a full price and the amount of debt to be raised definitely seems to have unnerved certain investors," said Stephen Surpless, senior analyst at Cantor Fitzgerald.

"While vodka has been a growth market over the past few years, this may be the top of the cycle in terms of multiples paid," he added.

The sale of V&S is the centerpiece of Sweden's largest-ever push to privatize state assets and is Pernod's biggest move since it bought Britain's Allied Domecq for $13 billion in 2005.

The company said a 12 billion euro syndicated loan would pay for V&S and refinance existing Pernod debt.

HIGH COSTS

Pernod Chief Executive Patrick Ricard acknowledged Absolut was an expensive brand but said this was necessary to fill a portfolio gap and promised to get debt levels down quickly.

"The brand is for sale when it's for sale. You buy it when it's for sale or you miss it," Ricard told Reuters.

Ricard said the deal brought debt levels to about six times earnings before interest, tax, depreciation and amortization (EBITDA), which he said was exactly the same as for the Allied Domecq deal, and before that the Seagrams buy.

Pernod Ricard said after the deal annual volume sales would total 91 million 9-litre cases of spirits, up from 75 million before, putting it just behind Diageo's 93 million.