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Pernod Gets the Gentle Treatment From New York Hedge Fund

Lionel Laurent
Pernod Gets the Gentle Treatment From New York Hedge Fund

(Bloomberg Opinion) -- Billionaire Paul Singer is often portrayed as every CEO’s worst nightmare. His hedge fund Elliott Management Corp. is known for aggressive activist campaigns that put boardrooms under pressure to make radical changes, or get swept aside.

But his latest European bet, on French liquor-maker Pernod Ricard SA, is different. It’s a more back-seat, common-sense approach that advocates tweaks rather than a structural overhaul. Judging by the recent board changes at the company and the share-price rise, it is working out for Elliott and Pernod’s management. Don’t be surprised if this ends up as more of a sprucing up of the ancien regime than a full-blown revolution.

In December, when Elliott disclosed a near 1 billion euro ($1.1 billion) stake in Pernod-Ricard — owner of Chivas Regal, Jameson Irish whiskey and Absolut vodka — it looked like we were in for a typical fight between aggressive New Yorkers and a French corporate treasure. Elliott lashed out at the family-run company’s governance and called for cost cuts to fix its poor performance versus peers. Bloomberg News reported that a sale of Pernod was one option. The drinks firm’s CEO, Alexandre Ricard, defended its long-term investment horizon. The government in Paris weighed in, warning sternly about “short-term” agitators at national champions.

But behind the bluster, not much here fits the radical activist template. Sell Pernod-Ricard? To whom exactly? The probable antitrust obstacles in attempting to bash it together with Diageo Plc or LVMH SE look insurmountable. And trying to argue that Pernod is a lackluster performer and victim of a cosseted board doesn’t entirely work either. The stock has risen 83 percent in five years, versus a 62 percent gain for Diageo. Thierry Le Clercq, a fund manager at Mandarine Gestion, says Ricard appears unfazed by Elliott’s arrival. The attraction to investors is future growth in Asia, and that’s on track.

On closer scrutiny, Elliott isn’t being especially pushy. Improving corporate governance and narrowing a 5 percentage point gap in operating margins versus Diageo is sensible. Pernod’s responses suggest it is moving in that direction anyway. Long-time insider Pierre Pringuet has given up his vice-chairmanship, while the well-connected businesswoman Patricia Barbizet has joined as an independent director.

Pernod’s 100 million euros cost-saving plan is well below what Elliott is looking for and Singer’s fund says the firm could be more “ambitious.” But in a roundabout way, Elliott and Pernod’s executive management team may find their interests aligned. A refreshed board might give the CEO Ricard more freedom to tackle spending and finally turn the page on the 2008 acquisition of Absolut, which saddled Pernod with debt and hefty write-downs. Ricard himself told Bloomberg News in an interview that family shareholders had been pushing him to stick to the existing strategy “or else.” So it’s interesting that he says he’s “happy” that Elliott is now on the register.

As for Singer, he could do with an easy win in Europe that doesn’t involve a protracted, politically charged struggle. Other bets haven’t gone smoothly: Telecom Italia SpA is deeper in turmoil, Dutch chipmaker NXP Semiconductors NV failed to get acquired by Qualcomm Inc., and Elliott’s attack on paint-maker Akzo Nobel NV resulted in a truce after legal setbacks.

Pernod looks like an entente cordiale by comparison. The fund could very well sell its stake tomorrow and declare a win for its clients; making money is often better than making trouble. Emmanuel Macron might raise a glass to that.

To contact the author of this story: Lionel Laurent at llaurent2@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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