Friday, July 18, 2008

Combination of Wine and Spirits Companies Receives FTC, EC Approval

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Pernod Ricard received clearance from the Federal Trade Commission (FTC) and the European Commission (EC) for its proposed $9 billion acquisition of Swedish spirits company V&S Vin & Sprit on July 17. The transaction is, however, conditioned on the divestiture of a number of brands in various markets.

Pernod Ricard is based in France. Among the more popular brands of spirits produced and distributed by Pernod Ricard in the United States are Martell Cognac, Hiram Walker Cordials, Kahlua Coffee Liqueur, Chivas Regal, Ballantine’s, and The Glenlivet Scotches, Jameson Irish Whiskey, Beefeater Gin, Wild Turkey Bourbon, and Mumm Champagne. Pernod Ricard also distributes Stolichnaya vodkas, but it does not produce or own the line.

V&S is owned by the Kingdom of Sweden. The brands of V&S include the lines of Absolut Vodka, Level Vodka, Plymouth Gin, and Cruzan Rum.

FTC Concerns

The FTC expressed concern that the transaction may substantially lessen competition in five markets: "super-premium" vodka, Cognac, domestic cordials, coffee liqueur, and popular gin.
The agency contended that the acquisition would effectively combine the two most popular brands of "super-premium" vodka sold nationwide--Absolut and Stolichnaya.

Under the terms of a proposed consent order, Pernod Ricard would be required to end its distribution agreement with the owners of Stolichnaya—Spirits International BV—to satisfy competitive concerns in that market.

FTC Bureau of Competition Director Jeffrey Schmidt said that the transaction would also raise “concerns about the exchange of information in [the] four other distilled spirits markets.”

In purchasing V&S, Pernod Ricard will assume V&S's role in a distribution joint venture between V&S and Fortune Brands, Inc. According to the FTC, Fortune's subsidiary Beam Global Spirits & Wine, Inc. owns brands that compete with Pernod Ricard brands in the markets for Cognac, domestic cordials, coffee liqueur, and popular gin.

Preventing Use of Sensitive Information

The proposed consent order is designed to preserve competition between Pernod Ricard and Beam Global in these markets by imposing firewalls to prevent Pernod Ricard from acquiring and using competitively sensitive information about the Beam Global brands. Beam Global brands that compete with Pernod Ricard brands include: Courvoisier Cognac, DeKuyper cordial, Starbucks coffee liqueur, and Gilbey’s gin.

International Cooperation

In announcing the settlement, the FTC said that its staff cooperated with the staff of the EC in reviewing the proposed transaction. The cooperation was undertaken pursuant to their 1991 bilateral cooperation agreement and their 2002 Best Practices on Cooperation in Merger Investigations.

Divestitures in European Markets

The EC investigation identified competition concerns in a number of national markets, including the market for: aniseed flavored spirits in Finland, vodka in Greece, gin in Poland, and cognac, port, gin, and Canadian whisky in Sweden.

To satisfy the EC’s competition concerns, Pernod Ricard offered to divest the following brands: Dry Anis in Finland, Serkova vodka in Greece, Lubuski gin in Poland and Star Gin, Red Port, and Gr√∂nstedts cognac in Sweden. In addition, Pernod Ricard will discontinue the distribution of a third party's brand, Royal Canadian, to alleviate competitive concerns with respect to the market for Canadian whisky in Sweden. The July 17 EC statement also noted that Pernod Ricard would terminate distribution agreements for Stolichnaya and Moskovskaya vodkas.

Further information regarding this development—In the Matter of Pernod Ricard S.A.—appears here on the FTC website.

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