Remy Cointreau shares soar on talk of Brown-Forman interest

Reuters - UK Focus

* "Betaville" blog says Jack Daniel's maker mulling a bid

* Remy declines comment, Brown-Forman not immediatelyavailable

* Remy Cointreau (Frankfurt: RMC.F - news) vulnerable as faces China challenge (Bankers, analysts, Remy, updates shares)

By Dominique Vidalon

PARIS, April 4 (Reuters) - Shares in Remy Cointreau surged on Friday on speculation that Brown-Forman, the U.S maker of Jack Daniel's whiskey, was eyeing theFrench cognac producer, though prospects of a near-term deallooked slim.

Many drinks groups could afford to buy Remy Cointreau, whichhas a stock market valuation of 2.9 billion euros ($4.0 billion)against $19 billion for Brown-Forman and is seen as vulnerableat the moment as it grapples with falling sales due to slowingdemand in China.

"Remy is definitely being peddled about as there is anopportunity now, it's down on its knees. The timing is rightalthough I still think it's overvalued. I don't think theproblems in China are over, it's not hit bottom yet," a banker said.

Remy shares have lost 18 percent since November when themaker of Louis XIII (Other OTC: LOUIF - news) luxury cognac issued a profit warning due toweak demand in China. In January its chief executive quit and itis still searching for a permanent replacement.

Like rivals Diageo (LSE: DGE.L - news) and Pernod Ricard (Frankfurt: PER.F - news) , Remyhas been hit by a government crackdown on luxury gift-giving andpersonal spending by civil servants in China, as well as byslowing economic growth in the world's second-biggest economy.

Cognac makes up 80 percent of Remy's operating profit andChina half of that total.

Remy Cointreau shares rose as much as 10 percent early onFriday before trimming gains to trade up 4.5 percent by 1330GMT.

Traders cited an article on the British financial blog"Betaville" as the source of the speculation.

Remy Cointreau declined comment. Brown-Forman officials werenot immediately available outside business hours in the U.S.

"The idea is that Brown-Forman is desperate to get hold ofRemy Cointreau because it doesn't want to get left behind in theglobal consolidation game that re-ignited at the beginning ofthe year when Japan's Suntory snapped up U.S bourbon specialistBeam (NYSE: BEAM - news) for $16 billion," the blog said.

Tentative discussions had been held between investmentbanking advisers to both companies, with Lazard said to berepresenting Remy Cointreau and its controlling shareholders.

There were however no formal discussions taking placebetween the companies, the blog added.

"In this industry everybody talks to everybody. It would notbe surprising if bankers talked to bankers but it may be allvery preliminary," said Bernstein analyst Trevor Stirling.

Another banker said that banks were trying to persuade Remyto sell "but there are no signs that they're sellers".

A GOOD MATCH

Remy was also likely to attract interest from the likes ofJapan's Suntory and privately-held Bacardi, the second bankersaid.

Industry bankers and analysts said Remy and Brown-Formanwould be a good match, since they are both family-controlled,both derive a significant proportion of their profit from asingle, brown spirits brand, and they complement each othergeographically.

Brown-Forman, based in Louisville, Kentucky is best knownfor its Jack Daniel's Tennessee whiskey, which accounts forabout half its revenue, but has smaller brands includingSouthern Comfort and Herradura tequila.

It is itself often seen as a target for the likes of Diageo,Pernod Ricard or Bacardi.

In its latest quarter Brown-Forman reported strong salesgrowth in China despite the anti-extravagance campaign. Analystssaid this was partly due to Jack Daniel's being a "premium"brand rather than an "ultra luxury" brand like Louis XIII.

It was unclear if the Herard Dubreuil family, which controlsover 60 percent of Remy's voting rights, would be a seller.

"The family would be a reluctant seller but if the price wasright that could change. At the moment they are 100 percentfocused on the cognac recovery," said Bernstein's Stirling.

Societe Generale (Paris: FR0000130809 - news) analysts said in a note on Friday thatgiven the attractiveness of Remy's portfolio, which includescentury-old cognac eaux de vie inventories, a deal could fetchmultiple of 22 times estimated 2014 EBITDA, or 85 euros pershare, topping the 20 times of the Suntory/Beam deal.

A very complicated shareholding structure with differentfamily members holding different stakes may also be a hurdle toa deal with some family members likely to want cash.

Societe Generale analysts said it was likely a future deal would be a combination of cash and shares.

($1 = 0.7291 Euros) (Reporting by Alistair Smout, Dominique Vidalon, MartinneGeller, Anjuli Davies; Editing by Catherine Evans and JohnStonestreet)

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