* "Betaville" blog says Jack Daniel's maker mulling a bid
* Remy declines comment, Brown-Forman not immediately
* Remy Cointreau vulnerable as faces China challenge
(Bankers, analysts, Remy, updates shares)
By Dominique Vidalon
PARIS, April 4 Shares in Remy Cointreau
surged on Friday on speculation that Brown-Forman
, the U.S maker of Jack Daniel's whiskey, was eyeing the
French cognac producer, though prospects of a near-term deal
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
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 and Pernod Ricard, 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
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 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
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
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