Activist investor Elliott moves on Pernod Ricard

Activist investor Elliott has taken a stake in Pernod Ricard, arguing that the world’s second-largest drinks company is underperforming its rivals.

Elliott has taken a stake of more than 2.5%, and will now push for improvements to margins. It has already met with chief executive Alexandre Ricard and written to the board to “share its analysis and views on value creation”.

In a statement, Elliott said that despite the favourable economic backdrop for spirits companies, Pernod Ricard - which owns Malibu, Absolut vodka, Beefeater gin and a number of other leading brands - had lost market share across key segments and underperformed its peers on “several metrics”.

It added: “Successive operational improvement plans have failed to generate operating leverage, leaving operating margins at a five-percentage point discount to its closes peer, Diageo.

“Pernod’s M&A track record has also been disappointing with the €6bn acquisition of Absolut in 2008 falling short of expectations.”

Ellliott, which has around $35bn of assets under management and was founded by the billionaire Paul Singer, also highlighted “inadequate corporate governance and a lack of outside perspectives” at the French company. The Ricard family holds around 19% of the voting rights.

Analysts at RBC Capital Markets said: “This lack of operating leverage was the basis of our downgrade to ‘underperform’ earlier this year, and therefore we would see any improvement as a result of Elliott’s stake as a material positive for the company.

“However, we remain at ‘sector perform’ as we continue to think the valuation does not provide an attractive entry point at the moment.”

Kepler Cheuvreux, which has retained its ‘hold’ recommendation on the stock, said Elliott’s concern over the lack of operating leverage was a “valid point”.

It continued: “The lack of operating leverage has held back Pernod Ricard’s EBIT growth in the past. It reported an EBIT margin of 25.3% in 2010 and 27% in 2018; Diageo has grown its EBIT margin by more than 300bps in the same period.”

“In the event that Pernod Ricard acts on some of the recommendations, we expect the benefits will take time to filter through to growth and margins.”