- Pernod Ricard, the owner of Absolut Vodka and Jameson Irish Whiskey, is acquiring Castle Brands for $223 million. Pernod will add the New York-based company's brands to its portfolio including Jefferson's Bourbon, Brady's Irish Cream and Clontarf Irish Whiskey.
- Chairman and CEO of Pernod Ricard Alexandre Ricard said in a release this acquisition fits with the company's strategy and portfolio, especially Jefferson’s Bourbon whiskey. "Bourbon is a key category in the U.S. which is our single most important market," he said.
- On Thursday, Pernod reported its strongest annual earnings growth in seven years, boosted by demand in China. The company also announced a $1.1 billion share buyback and plans to open its first distillery in China for $150 million, which will produce malt whiskey.
Pernod is continuing to beef up its portfolio and expand its dominance in the whiskey category with this latest acquisition. Adding Castle Brands to its portfolio could be a smart move as bourbon and whiskey see category growth, while consumers have turned away from other spirits.
As demand lags for vodka, beer and traditional spirits, alcohol companies like Pernod and Diageo are branching out to more craft brands. U.S. whiskey sales jumped 8.7% last year in volume and bourbon grew 7%, according to drink market analysis from IWSR cited by The Wall Street Journal. At the same time, vodka volumes dropped 2.6%.
Jefferson's Boubon whiskey has boosted Castle's earnings and could do the same for Pernod. In June, Castle Brands announced its annual net income attributable to common shareholders jumped to $5.7 million and case sales of its Jefferson's brand rose 20.6%. In its most recent earnings in August, Castle Brands reported "continued rapid growth" of Jefferson's.
This acquisition is one of several for Pernod, which has been on an M&A binge lately. The company acquired Italian gin brand Malfy in April, took a majority stake in Rabbit Hole bourbon in June and bought Firestone & Robertson Distilling Co., which produces Texas-based TX whiskey, this month. Now, Pernod is adding Castle to that list, expanding its reach in the whiskey category. This spur of acquisitions could be a direct result of the pressure the company has received to improve.
Last year, activist investor Elliott Management Corp., a New York-based investor group, publically pushed the company to make changes. After revealing its more than 2.5% stake, Elliott called out the company's losing market share and said its M&A strategy was "disappointing." The investor group said it was specifically upset about the performance of Absolut, which the company acquired in 2008 for $8.3 billion. The company has struggled to boost the brand since then.
Amid the pressure to catch up to its competitor Diageo and the struggles with vodka, Pernod is targeting craft and premium liquor brands. And so far, its M&A moves seem to be proving successful. With the company's buyback announced and its earnings rebounding, the pressure from Elliott could have forced a real turnaround for the company.
In addition to its expansion in the whiskey category, Pernod is also growing its brand internationally. In its earnings announced Thursday, the company saw sales in China jump 21% in fiscal year 2019. It makes sense that this growth has pushed the company to open a distillery in China that will produce whiskey. Companies are increasingly looking outside the U.S. for investment opportunities and younger Chinese consumers have been drinking more whiskey. Single malt whiskey sales in China reached $57.9 million at the end of June last year, up 36% from 2016, according to data from Diageo reported by China Daily.
Pernod is still the second largest alcohol company behind Diageo, and it seems like Elliott is going to continue to push the company for a larger market share. After criticism from Elliott that the family company was too insular to grow, Pernod also nominated two new external directors to its board Thursday. With continued acquisitions, new board members and expansion into China, Pernod is responding to the recent criticism with a real shift in strategy that could produce results.