Pernod CEO stuck between kin and Elliott

08 February, 2019
Alexandre Ricard

Pernod's Alexandre Ricard

Alexandre Ricard, the chief executive officer of Pernod Ricard SA, has little room for maneuver, says Bloomberg reporters Thomas Buckley and Scott Deveau.

Alexandre Ricard, the chief executive officer of Pernod Ricard SA, has little room for maneuver. On one side is Elliott Management Corp. The activist investor wants the world’s second-largest distiller to slash costs and overhaul corporate governance. On the other, Ricard’s family - which expanded the business over almost half a century - is telling him to stick to a strategy that produces consistent long-term shareholder returns. 

“The Ricards are a family that grew up in the industry and have accompanied the transformational journey Pernod Ricard is on,” the CEO said in an interview at the company’s Paris headquarters. Upon news of Elliott’s investment, “they said, if you do a single thing that jeopardises long-term value creation, well - they didn’t finish the sentence.” The competing demands have left Ricard, 46, grappling with the toughest challenge in recent memory at the distiller. Formed in 1975 from the merger of two producers of anise-based liquors popular in France, Pernod Ricard grew into a giant by purchasing brands like Jameson Irish whiskey and Absolut vodka. Billionaire Paul Singer’s Elliott, which is deploying its style of muscular capitalism across Europe, disclosed its stake late last year and began pushing for change.

‘Ruthlessly Focused’

That pitted the investor against the Ricard family, which owns 16% of the stock, controls 22% of voting rights and recently bought a block of shares worth about €500m ($565m). Most board members are affiliated with the family, allowing the Ricards to influence strategy to an extent that Elliott has said is disproportionate to their holding. 

“My job isn’t to convince any one shareholder,” said Ricard, the grandson of Paul Ricard, who orchestrated the merger that founded the company. “We’re now in delivery mode and have to be ruthlessly focused on our business and delivering long- term value.” A representative for Elliott declined to comment. 

Results released Thursday may provide Ricard some breathing space. Earnings grew at the fastest pace since 2012 in the six months through December, allowing the company to lift its forecast for profit in the fiscal year that runs through June. Ricard announced plans for cost savings of €100m by 2021 - a fifth of the amount the investor is seeking. The distiller also pointed to savings of about €200m expected by June as part of a former initiative, and pledged to increase profit margins. 

The stock rose 1.2% in Paris to €149.45, bringing the gain this year to 4.3% and valuing the company at almost €40bn. The struggle at Pernod Ricard reflects a wider tension in the consumer goods industry, where businesses such as Dove soap - maker Unilever promote long-term strategies while others, like Kraft Heinz Co., have set the standard in profitability by cutting costs at a pace that some investors criticise as detrimental to the health of their brands. 

Ricard is sanguine about dealing with a family that’s unemotional about who runs the business that accounts for nearly all of their net worth, so long as it’s run to their liking. So far, Pernod Ricard’s response to Elliott has been more playful than antagonistic. Last month, it encouraged employees to become “activists of conviviality.’’ 

“The reality is that they’re now one of our shareholders and I’m actually happy to have a dialogue with them,” Ricard said in the interview. 

In January, the spirits maker named Patricia Barbizet as lead independent director and charged the former CEO of auction house Christie’s with overseeing relations with investors, especially on governance matters. Elliott’s investment prompted speculation about the intentions of another big French player in cognac and champagne - LVMH, the luxury goods maker that owns Moet & Chandon and Hennessy. LVMH Chairman Bernard Arnault said last week that he’s had no contact with Elliott on the matter. 

Ricard has a bar at his apartment in Paris with rare editions of some of Pernod Ricard’s finest liquors. His manner of doing business fits that persona, having made “many huge business decisions’’ over drinks, including the acquisitions of Monkey 47 and Del Maguey mezcal. That corporate ethos could help pacify some of the exchanges between the company and the barbarians at the bar.  

“We have business meetings with Elliott that are better kept around a table, but it doesn’t mean that on Friday evenings you can’t go out with your friends and have a drink.”





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