Rum and Spirits division in trouble

Mar 15, 2009 News

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As liquidators, judicial managers and governments around the region grapple with the effects of a troubled CL Financial in Trinidad and the ripple effect on Colonial Life Insurance Companies around the region, other subsidiaries of the company are beginning to show signs that the woes are depending.

CL Financial is the parent company of Angostura Holdings Limited and CL World Brands Limited.

CL World Brands Limited has among others as subsidiaries Angostura USA, International Beverage Corporation, Burn Steward UK, Angostura France, Societe Dugas, Paragon Vinters Ltd, Angostura Ltd, Burn Steward Distillers Ltd, Thomas Hine and Co. Limited, and Fassbind – Eaux-de-Vie.

Burn Stewart in turn owns Whyte and Mackay.

According to reports emanating out of the United Kingdom, the wine merchant, Paragon Vintners, is to cease trading after struggling to cope with the effects of the economic downturn.

The company is reported to have made public its intention on Friday last that it planned to wind up its business and its entire staff has been informed.

The merchant’s collapse follows a decision by parent firm Angostura Suisse to exit the UK wine distribution business.

Paragon’s board reported on Friday, “We have made significant progress in reviving the business over the last year, despite the many legacy issues that were inherited…The economic climate coupled with the rapid devaluation of sterling has made the ongoing trading position of Paragon unattractive.”

The wine merchant has said that it will honour existing supply contracts, as well as conduct a full consultation with staff.

Paragon’s collapse is not likely to be uncommon over the next few weeks as the UK wine industry struggles under the weight of recession, tax rises and a devalued sterling currency.

Wine giants Constellation and E&J Gallo have already said that they plan to cut up to 50 jobs each in the UK.

Another company tracing its roots to CL financial is Whyte and Mackay and this has been put up for sale.

According to international reports, Whyte & Mackay, the Scotch whisky group, is to be sold off by its parent group, Bangalore-based United Spirits.

United Spirits, a division of Vijay Mallya’s United Breweries, paid £595m for the Glasgow-based distiller at the peak of the market in May 2007.

Having acknowledged that there will be few takers for a minority 49 per cent stake in Whyte & Mackay as earlier planned, Mallya is now looking to sell the whole company, based in Glasgow’s St Vincent Street.

The company is also considering that other asset and equity stake sales as he struggles to deleverage United Breweries’ tattered balance sheet.

Mallya’s global business empire, which also includes the Kingfisher airline, became over-stretched as a result of a string of highly priced deals at the height of the credit markets.

John Wakely, of corporate finance firm The Angel’s Share, said that only one of several companies that looked at Whyte & Mackay in 2006-07 was still in a position to make a second bid, and that is William Grant & Sons.

However, a source at William Grant said the company now had “no interest in acquiring Whyte & Mackay”. This is partly because it has increased its distilling capacity by opening a new distillery in Girvan.

According to industry sources, the only company that may have the appetite for a takeover of Whyte & Mackay is French drinks firm, La Martiniquaise.

One analyst said: “If La Martiniquaise was to buy it, it wouldn’t want it for the brands but for the production capacity. It was planning to build new distillery at a site near Bathgate. It’s possible it would scrap those plans and instead buy Whyte & Mackay.”

He added that Mallya would be lucky to raise more than £200m from a sale of Whyte & Mackay. This is because of the paucity of potential buyers, the absence of private equity bidders and because the price of bulk Scotch is expected to fall by 15%-20% in the next few years.

Another bulk whisky producer, Burn Stewart, is also on the market at the moment, which is likely to further deflate the value of Whyte & Mackay.

Burn Stewart is being sold because its parent company, the troubled conglomerate CL Financial, got into financial difficulties and was rescued by the Trinidadian Government last month.

Wakely said: “This effectively means you’ve got two bulk Scotch whisky businesses on the market, which doesn’t do anything for prices.”

Wakeley said that companies including UB, CL and French vodka maker Belvedere (currently in Chapter 11 bankruptcy) were “learning that leverage can go both ways.”

He added: “Mallya is exploring every option and none of the options is necessarily easy. It would be impossible for him to get £595m.”

A point to note in the wake of the deepening financial woes with CL Financial is whether the Government of Guyana will continue in its appeal in a case that it lost against Demerara Distillery Limited wherein that company had sought to have preferential access to molasses produced locally.

The Government had entered into an agreement with Angostura of Trinidad and Tobago as it relates to providing molasses for that company.

A Memorandum of Understanding was also singed with that company between the Guyana Sugar Corporation and the Duprey-owned distillery.

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