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Activist Investment Group Pressures Pernod For Changes

December 12, 2018

Activist investor Elliott Management Corp. has taken a 2.5% stake in Pernod Ricard and is urging changes at the world’s second-largest spirits marketer. In a statement issued today, Elliott said it has met with Pernod chief executive Alex Ricard to recommend that the French company overhaul corporate governance and welcome outside perspectives in a bid to increase operating margins.

Specifically, Elliott asserted that Pernod’s operating margins are at a five percentage point discount to Diageo’s, its closest competitor in the global spirits market. The investment group also cited Pernod’s €6 billion ($6.8b) acquisition of Absolut in 2008 as underperforming expectations. Elliott is pressing Pernod to launch “a more ambitious operational improvement plan to close the profitability gap with competitors.”

While Elliott isn’t urging Ricard to step down, it would like to see the French company diversify its management team with more outside perspectives and sell off some non-core brands, the Wall Street Journal reported. It’s unclear how much Elliott can influence Pernod, given that the Ricard family controls around 15% of shares and a quarter of voting rights.

In its fiscal year ended in June, Pernod posted sales up 6% on an organic basis to €9 billion ($10.2b), with profit from recurring operations up 6.3% to €2.4 billion ($2.7b). However, on a reported basis, sales were roughly flat and operating profits were down 1.5%. By comparison, Diageo posted organic sales up 5% to £12.2 billion ($15.4b) and operating profit up 7.6% to £3.7 billion ($4.7b) during the same time period, with those measures up 0.9% and 3.7%, respectively, on a reported basis.

According to Impact Databank, Pernod’s global spirits volume increased 1.6% to 121 million 9-liter cases last year, while Diageo’s slipped 1.5% to 213 million cases.—Daniel Marsteller

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