Elliott Management has taken a stake in Pernod Ricard worth more than €930 million ($1.05 billion) and will work with the family-backed French drinks company to try to improve its performance, the activist hedge fund said on Wednesday.
Shares in the maker of Absolut vodka and Chivas Regal Scotch rose 3.8% by 0935 GMT after Elliott said it had a stake of just over 2.5% and that it had met Pernod CEO Alexandre Ricard to discuss the way ahead.
New York-based Elliott, which has $35 billion under management and a track record of pushing hard for change in companies, said Pernod possesses an 'outstanding' portfolio of brands and offers 'one of the most attractive investment opportunities in the industry'.
However, it said Pernod has lost market share across key segments and has underperformed its peers with respect to operating margins and total shareholder return.
It also said Pernod's M&A track record was disappointing, particularly its 2008 purchase of Absolut vodka.
"An environment of inadequate corporate governance and a lack of outside perspectives have contributed to this underperformance," Elliott said, suggesting that "operational and governance improvements would allow Pernod to unlock much of the value that the company is capable of delivering".
Pernod Ricard was born from the 1975 merger of two French anise-based spirits makers - Pernod, founded in 1805 and Ricard, founded in 1932.
The Ricard family remains the company's largest shareholder, with a 15.19 percent stake, according to Refinitiv data.
Sharing Its Views
The investor said it had written to the company’s board "to share its analysis and views on value creation".
Neither Pernod nor Elliott were available for immediate comment on Wednesday morning.
In October, Pernod reported a jump in first-quarter sales, but also warned that this level of sales growth would moderate as the financial year progressed.
Pernod shares have risen by roughly 7% so far in 2018, beating a 5 percent drop in the broader Stoxx Europe 600 Food & Beverages Index and a 4% rise in the shares of Diageo.
"Given strong recent share price performance and family involvement, we do not expect this to result in a significant change of strategy for the company," Jefferies analysts said in a note. "However, it could lead to greater emphasis on margin acceleration, in particular from full year 20 onwards."
Jefferies calculates that Pernod had total shareholder return of 105% over the last 10 years, whereas Diageo returned 145%, Campari 181% and Remy Cointreau 220%.