Elliott turns its attention to Pernod Ricard
Activist hedge fund Elliott Management has built a stake of about $1bn in Pernod Ricard, calling on the owner of Chivas Regal whisky and Absolut vodka to shake up the management and jump-start lagging profit margins.
The stake, of more than 2.5%, is Elliott’s latest big bet on Europe, where it has made several investments over the past few years in companies such as Telecom Italia and Sky.
It acquired Britain’s biggest bookstore chain, Waterstones, this spring.
Pernod has lost market share across various segments — including vodka, gin and some types of whisky — and has “significant room for improvement”, the hedge fund said.
While Pernod has steadily grown sales for years, its margin growth has stagnated, leaving its operating margins five percentage points lower than rival Diageo, said Elliott.
Elliott will press Pernod to set more ambitious targets to cut costs by centralising more functions and raise revenue to improve margins, while adding new blood from the outside, according to a person familiar with the matter.
A spokesperson for Pernod Ricard did not immediately offer comment.
Shares of the Paris-listed company were up 3.8% in recent trading.
Elliott, one of the world’s biggest hedge funds, is one of the most prominent global activist investors, launching campaigns against a raft of companies including Australian mining giant BHP Group, smartphone maker Samsung Electronics and US-based aerospace parts maker Arconic.
The company’s European foray has been a mixed success.
Elliott is waging a bitter battle against French media conglomerate Vivendi over control of Italy’s Telecom Italia since winning a proxy battle to install new directors in May.
The hedge fund also took a hit on NXP Semiconductors of the Netherlands, betting incorrectly that its deal to be acquired by Qualcomm would be approved by regulators.
Elliott’s European bets have been largely led by Gordon Singer, the son of Elliott founder Paul Singer, and a group of managers based in London.
Elliott recently ramped up its public campaigning in Europe.
Its approach — often backing demands for change with threats to oust management and directors — contrasts with quieter campaigns by many peers.
The Wall Street Journal recently reported that Elliott has been shifting tack to focus on company governance and board structure rather than margins and sales.
Elliott believes Pernod’s management and board are too French and insular, while lacking diverse career experience.
Pernod Ricard had been considered safe from outside influence because the family behind it holds about 15% of shares and 25% of voting rights.
The company traces its roots back to 1805, when Henri-Louis Pernod founded an absinthe distillery in a French-Swiss border village. In 1932 Paul Ricard founded his own anise-based spirits operation in Marseille.
The two French companies merged in 1975.
Elliott is not looking to oust Ricard as CEO or to pressure Pernod to sell itself, said a person familiar with its thinking.
Given the family’s influence and the importance of its name to the Pernod brand, the hedge fund needs its co-operation. Antitrust issues and likely pushback from the French government around a sale of Pernod, one of the country’s best-known companies, would make a sale difficult.