Drinks giants target Absolut as Swedish voters ponder state sell-off

Leading party in September election puts the privatisation of Vin & Sprit back on to the political agenda
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The Independent Online

The multi-billion dollar sale of Vin & Sprit (V&S), the owner of trendy Swedish vodka Absolut, is once again on the cards.

V&S is owned by the Swedish government, which has always been steadfast in its refusal to sell. But the country is holding elections next month and the opposition leader has confirmed that, should his party come to power, it would privatise some state-owned assets.

The Swedish authorities own a swathe of companies and is the country's biggest single owner of businesses. But Fredrik Reinfeldt, the head of the Alliance for Sweden party, was recently reported as saying: "We believe that the state has another role to play: to provide regulations and legislation, and not be an actor in the marketplace itself."

His comments have therefore raised hopes that, should the popular Alliance for Sweden be successful in its bid for power, V&S will be one of the assets sold off.

The biggest brand owned by V&S is Absolut. The vodka is extremely popular globally and has become the world's third-largest premium spirits brand in just 10 years. Although V&S has only the one global brand, a number of leading drinks companies would still be keen to get their hands on the business.

"It's one brand, but Absolut is the largest premium vodka brand in the world," said a drinks analyst at a leading investment bank. "It sells 5 million or so cases in the US and it would be seen as being attractive to a lot of players out there."

The business, should it be sold, is likely to be floated. That way, the Swedish government could retain a stake. But most believe it would be snapped up soon after its market debut.

"It would be picked up quickly," said the analyst. "However it goes, you just know the brand will be sold soon after, and the usual list of candidates will be involved."

The analyst said that average earnings before interest and tax at V&S were around $200m (£106m). When it comes to valuing the business, many believe it could be sold on a multiple of the mid- to high teens, making it worth around $3bn to $4bn. Premium brands such as this are in high demand: two years ago, for instance, the family-owned Bacardi splashed out $2bn for Grey Goose, the leading premium vodka in the US.

Those likely to be interested include Pernod-Ricard, the French drinks group that acquired Allied Domecq for £7bn last year, and Diageo. Although the British drinks giant owns Smirnoff, analysts feel that it could still be a potential bidder as long as it offloaded some of its lesser brands.

However, there is still a long way to go before a sale. The Alliance in Sweden party has been leading the polls in recent weeks, but it still needs to win the elections on 17 September. It would then need to include V&S in its pledge to sell state-owned assets.

There have also been many false starts before, with the industry regularly hearing rumours that the current Social Democrat government, which has been in power for 12 years, was considering selling the business. To date, however, the Swedish authorities have always dismissed such speculation.

Founded in 1917, Stockholm-based V&S has operations in 10 countries, employing around 2,500 employees and selling in 125 markets. Group sales in 2005 came in at SK9.8bn (£717m). Until 1995, the business was solely focused on the Swedish market but then decided to start exporting Absolut. Now only a sixth of V&S's sales are made in Sweden.