Daily analyst comments
CEDC decides not to acquire Nemiroff: Synergy has no need to worry
08.07.10 10:44
CEDC’s refusal to acquire Ukrainian-based vodka producer Nemiroff means actually that the alignment of forced on the Russian strong drink market has stayed unchanged, which is favorable for other alcohol companies, including Russia’s second largest distilled spirits manufacturer, Synergy.
On July 8, several printed media reported that the deal for the acquisition of Ukrainian vodka producer Nemiroff by Polish-based Central European Distribution Corporation (CEDC) had fallen through. As the key reasons behind CEDC’s decision, media named a 20% drop in Nemiroff sales on the Russian market and a reduction in the company’s operating margin in Ukraine, revealed by due diligence. As to CEDC, it plans to use the saved USD 300-400 mn to repay debts and upsize its interest in Russian-based distributor of premium alcohol, Whitehall: at the moment, CEDC controls 49.9% of the company.
Today, CEDC is the leading company on the Russian distilled spirits market, with a 14.7% market share in natural terms and 12.9% in monetary terms. In our opinion, events concerning the largest market player could potentially affect the entire Russian distilled spirits market. By consolidating Nemiroff, CEDC could have strengthened its positions and market lead even more, notwithstanding Nemiroff’s deteriorating operating results. CEDC decision to give up the deal means actually that the alignment of forced on the Russian distilled spirits market has stayed the same, which is to the benefit of CEDC rivals, particularly, the second largest distilled spirits producer in Russia, Synergy, which controls 9% of the market in natural terms and 12% in monetary terms. The news should be to Synergy shareholders’ liking.
The fair price for one common share in Synergy (RTS: SYNG) estimated by peer-comparison method is USD 68.20 with a 123% upside.