Pernod Ricard Offloads Tia Maria (Italy)

France-based drinks giant Pernod Ricard has announced the sale of its Tia Maria coffee liqueur to Italy-based Illva Saronno for EUR125mn. The sale is part of Pernod Ricard’s debt reduction programme, with the firm having generated EUR700mn from disposals since the EUR5.7bn acquisition of Vin & Spirit in July 2008.

As part of the deal Pernod Ricard will continue to produce Tia Maria through its Chivas Brothers subsidiary, while the drinks giant will also provide short-term transitional distribution and longer-term distribution in some markets.

Win-Win Situation for seller and buyer
For Illva Saronno, the deal represents the chance to acquire a brand with global recognition, which at Pernod Ricard was always playing second fiddle to Kahlúa, leader of the global coffee liqueur category. Unlike Tia Maria, Kahlúa is one of Pernod Ricard’s 16 ’strategic brands’, which receive greater support and investment, but despite this the drink registered a 4% contraction in volumes in 2007/08 resulting in a 5% decrease in net sales.

Kahlúa was in fact the worst performing drink among Pernod Ricard’s strategic brands, which signals a general weakness in the coffee liqueur category that Illva Saronno will have to work hard to address. However, as a smaller business, with a more focused portfolio this may prove to be possible with Tia Maria receiving the support it may have been lacking as a fairly insignificant part of Pernod Ricard’s mammoth business.

Divestment Schedule
For Pernod Ricard the move takes the firm close to its target of raising EUR1bn through divestments.

The sale comes after it raised US$575mn through the sale of its Wild Turkey Bourbon brand to Italy-based Campari and a further EUR1bn through a rights issue. The money is all going to paying down debts, which ballooned following the acquisition of Absolut maker Vin & Spirit. The move pushed the firm’s net debt to EUR12.96bn, which is larger than its market capitalisation and almost 80% higher than the net debt of rival drinks firm Diageo. Pernod Ricard has a target of reducing its net debt to ’close to’ four times earnings before interest, taxes, depreciation and amortisation (from a multiple of around six before it began making divestments).

Source: Business Monitor International