Pernod Ricard chief defends family firm from activist - https://on.ft.com/2S1Mo7r
US hedge fund Elliott is pushing for changes at the spirits maker
The chief executive of France’s Pernod Ricard rejected activist investor Elliott Management’s charge that the group is a perennial under-performer with weak margins, defending his family company as “a beautiful success story” focused on long-term value creation.
Alexandre Ricard, who has led the maker of Ballantine whisky and Absolut vodka for nearly four years, is bracing for a fight now that one of America’s most feared activist investors has amassed a stake of more than 2.5 per cent in Pernod Ricard.
Elliott disclosed the position on Wednesday, and called for cost cuts to narrow the operating margin gap of 5 percentage points between Pernod and larger rival Diageo. Closing that gap would equate to an approximately €450m boost to Pernod’s profit.
Pernod has already started cutting costs under an efficiency plan and will invest half of the savings back into the “priority brands”, said Mr Ricard in an exclusive interview with the Financial Times.
“We had made voluntary choices a year ago to over invest in key brands and markets. Now is not the time to reduce investment levels in India, China or the US,” said Mr Ricard.
“I have a plan which will deliver top-line growth and bottom-line performance, setting us up for sustainable and responsible value creation.”
The 46-year-old CEO is one of the grandsons of the founder Paul Ricard, who invented the eponymous anise-flavored spirit known as pastis in the 1930s in the French Riviera city of Marseille. The family built the company through acquisitions into an international player in spirits, second only to UK-based Diageo, which is roughly twice the size of Pernod’s market value of €39.5bn.
Since taking over, Mr Ricard has boosted Pernod’s growth, helped by buoyant prospects for the global spirits market as more Asian consumers develop a taste for high-end spirits. Organic sales growth was 6 per cent for the financial year to June 30, up from 3.7 per cent the year before, and 2 per cent two years ago.
Now the former Morgan Stanley banker and Accenture consultant will have to contend with having Elliott as his fifth-largest shareholder.
The two sides have met multiple times in recent weeks, and have so far kept their public statements cordial.
“We value every one of our shareholders’ input,” said Mr Ricard. “Elliott is a shareholder, and of course, we listen to what they have to say, although I can’t comment on the specifics of the discussions.”
Nevertheless, tensions may well build, especially if the two sides end up not being able to work together and things turns political.
The French government already issued a statement in support of Pernod and the family, saying it “wants big French companies to have stable and long-term shareholders . . . who are not subject to pressure from shareholders who want only short-term financial profitability”.
For its part, Elliot, which manages about $35bn, criticised Pernod’s governance and board for not having enough independent voices.
The fund said its analysis “further suggests that an environment of inadequate corporate governance and a lack of outside perspectives have contributed to this under-performance”.
Asked whether he would be willing to allow a representative of Elliott to join the board, Mr Ricard declined to comment. “That is not a question I want to answer at this stage.”
Elliott also wants Pernod Ricard’s board to be open to larger-scale mergers and acquisitions than the modest deals it had been doing in recent years, according to a person familiar with the situation. Analysts have long speculated that Pernod could team up with one of the other family-backed spirits companies such as Jack Daniel’s maker Brown-Forman Corp or Davide Campari Milano SpA.
Asked about his appetite for deals, Mr Ricard said Pernod would continue to “dynamically manage our portfolio” by buying promising new brands and selling off under-performing ones.
Asked whether the family would be open to selling the company, the executive said: “Pernod Ricard is a beautiful success story based on very strong family values. Over the last three years we have created more than €11bn of value and our shares are up 38 per cent, outperforming the CAC 40 and the sector. This is what I call a group committed to long-term value creation.”