Bala Cynwyd, Pa., July 9 - Central European Distribution Corporation today announced that is has closed its strategic investment in the Russian Alcohol Group ("Russian Alcohol"), the leading vodka producer in Russia.
CEDC's equity investment of $181.5 million in Russian Alcohol will provide the Company with an initial stake of approximately 42% in the Russian Alcohol business. This transaction is in connection with Lion Capital LLP's acquisition of a controlling stake in Russian Alcohol. In addition to the equity investment, CEDC purchased $103.5 million of exchangeable notes which bear interest from 8.3% to 10.5% and can be fully exchanged into additional shares of Russian Alcohol starting in 2010. Our agreements governing this investment include put and call options to acquire the remaining stake in Russian Alcohol starting in 2010 based off of the prior year audited numbers. The strike prices for the call and put options have been agreed by all parties at multiples that are in line with CEDC's recent investments in Russia. CEDC has financed its strategic investment primarily through a combination of its share offering completed on June 30, 2008, as well as cash and a small component of debt.
Russian Alcohol is the largest vodka producer in Russia with over a 10% market share, and produces leading vodka brands such as Green Mark, which is the number one vodka brand in Russia and Zhuravli, a top selling premium vodka brand behind CEDC's Parliament, which is the top selling premium vodka brand in Russia. The Company also has a well established long drink business in Russia. Utilizing what we believe to be the largest spirits sales team in Russia, Russian Alcohol is expected to have 2008 net sales of over $500 million based on information provided to us in connection with our investment.
Lion Capital is a London-based investment firm that is recognized as a leader in investing in the consumer sector, with over euro 4 billion of equity capital invested in consumer businesses across Europe and North America. Lion's portfolio of market-leading food and beverage companies includes such well-known brands as Nidan, a leading juice producer in Russia, Weetabix, the UK's number one cereal brand, and the iconic Schweppes and Orangina beverage brands in Europe. Lion Capital's investment strategy is underpinned by exceptional experience within its senior team in investing in and operating within the consumer sector and the firm has a proven track record of successfully growing companies post acquisition.
William Carey, President and CEO commented, "We look forward to working with Lion Capital to improve the operational performance of the business as well as continue to build on the solid fundamentals that the existing management team has put in place. Russian Alcohol Group's growth year to date has been exceptional with volume growth rates of over 40% as compared to the prior year, according to information provided to us by the Russian Alcohol Group. The national sales network of the Russian Alcohol Group, the largest in the Russian spirit market, coupled with the best selling vodka portfolio puts it in a very enviable position. This is particularly important because of the legal restrictions on advertising spirits in Russia. "
Mr. Carey continued, "We believe that the Russian consumer continues to trade into the mainstream and premium vodka sectors from lower priced sectors and that the Russian Alcohol Group and Parliament are well positioned to capture these strong growth trends. As we move into the strongest half of the year for spirit sales, we look forward to working with Lion Capital and the management team of Russian Alcohol to identify synergies between our companies."
As a result of this investment, the Company is raising its full year 2008 comparable fully-diluted earnings per share guidance from $2.50 - $2.65 to $2.65 - $2.80. The Company is also increasing its full year 2009 comparable fully-diluted earnings per share guidance from $3.50 - $3.70 to $3.75- $4.00. As the investment will be accounted for under the equity method of accounting, there is no change to the Company's full year guidance on net sales of $1.57 - $1.70 billion for 2008 and $1.93 - $2.03 billion for 2009.
Citi and Renaissance Capital have acted as financial advisors and Dewey & LeBoeuf LLP has acted as legal advisor to CEDC.
CEDC is the largest vodka producer in Poland and produces the Absolwent, Zubrowka, Bols and Soplica brands, among others. CEDC currently exports Zubrowka to many markets around the world, including the United States, England, France and Japan. CEDC also produces and distributes Royal Vodka, the top selling vodka in Hungary, and produces Parliament Vodka, the leading premium vodka in Russia.
CEDC also is the leading national distributor of alcoholic beverages in Poland by value, and a leading importer of alcoholic beverages in Poland and Hungary. In Poland, CEDC imports many of the world's leading brands, including brands such as Carlo Rossi Wines, Concha y Toro wines, Metaxa Brandy, Remy Martin Cognac, Guinness, Sutter Home wines, Grant's Whisky, Jagermeister, E&J Gallo, Jim Beam Bourbon, Sierra Tequila, Teachers Whisky, Campari, Cinzano, Skyy Vodka and Old Smuggler.