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Seagram OKs Deal to Raise Martell Stake : Canadian Distiller to Purchase 40% More of Cognac Producer

December 17, 1987|From Reuters

TORONTO — Canadian distiller Seagram Co. said Wednesday that its French Champagne subsidiary Mumm et Cie has agreed to buy the Martell family's entire holding in Martell et Cie, one of France's most famous Cognac producers.

The Seagram offer of about $250 million U.S. for 40% of Martell is subject to approval by the French government, and one French stock analyst said Paris might block a purchase by a company that has a large majority of non-European shareholders.

Montreal-based Seagram already holds 12% of Martell, which has 17% of the world's Cognac market. The offer valued Martell at just under $635 million.

Martell President Rene Firono Martell told reporters in Paris that the deal would benefit Martell, France's second-largest producer of Cognac after Hennessy. "We expect that the combination will result in even greater growth and prosperity for Martell," he said.

Minutes after the Seagram announcement, London-based hotel and drinks group Grand Metropolitan PLC said it had almost doubled its 10% holding in Martell through stock purchases in the open market.

'Markets Globalizing'

"We feel we have a very strong position with Martell and we are watching the situation closely," a spokesman said.

Canadian analysts said the acquisition fits nicely into Seagram's strategy of moving into premium blends where profit margins are highest.

"It is a generous price to pay," said Montreal analyst Jacques Kafavian of McLeod Young Weir Ltd. "The spirits markets are globalizing. Every major distiller like Allied-Lyons PLC, Guinness or Grand Metropolitan PLC are attempting to buy up the independents. If they don't do it, the others will."

Analysts said world distillers are increasingly focusing on premium brands with high profit margins at a time when per capita consumption is declining.

Toronto analyst Bart Rowe of Nesbitt Thomson Deacon Inc. said Seagram can well afford to pay a high price for Martell, with about $300 million ($229 million U.S.) a year in cash flow, largely from dividends from its 22.5% interest in Du Pont. "Seagram's in great shape," said Rowe.

Martell posted net profit of 137 million francs ($24.9 million U.S.) in the year ended June, 1987, up from 105 million francs ($19.1 million) the previous year.

'Cutthroat Competition'

One Paris-based analyst said the Finance Ministry could block Seagram's offer under government rules that a company launching a bid for a French target must have a large majority of resident European Community shareholders.

Analysts said a blocking of the Seagram offer could leave the way open for Grand Met, which already has an extensive distribution agreement with Martell signed in July of this year.

In London, analysts said they did not rule out the possibility Seagram and Grand Met would agree to cooperate over Martell. But most thought that it was more likely Grand Met would sell out its enlarged stake.

"They're such cutthroat competitors that a deal seems a bit of a long shot," said one analyst. "Grand Met would be more likely to build up its stake a little more, then try and get the best price from Seagram."

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