Campari is betting on Italian cognac Courvoisier to strengthen US and Asian sales with a $1.2 billion (£940 million) acquisition of the iconic spirit brand announced this Friday.
The acquisition from Beam Suntory will be funded via a bridge loan provided by a consortium led by Crédit Agricole.
In a press statement, Campari said the takeover would increase the Milan-listed group’s debt ratio from 2.6 times earnings to four times earnings.
“A sustained deleverage is expected thereafter, fuelled by positive cash flow generation,” said Campari.
Cognac is “now primed to become the fourth major leg of Campari Group along with aperitifs, bourbon and tequila,” said the group.
It marks the largest deal in Campari’s history, “enabling a significant step up in the US presence with long-term transformational potential in strategic Asia”.
Courvoisier reported net sales of $249 million in the last financial year, marking a 33% decline compared to the same period in the previous year.
The US is Courvoisier's most significant market, responsible for approximately 60% of its net sales. The UK and China collectively contribute about 25% to the net sales, while Global Travel Retail made up just over 3%.
Despite these lower sales, analysts were cautiously optimistic about the acquisition.
“We see this as a positive move for a company that has a good track record of accelerating acquired brands while improving Campari's category footprint and scale in the US and China,” said equities commentators at Deutsche Bank.
“We expect the shares to react positively as a result,” they added, although short-term market reactions suggested otherwise.
Campari shares fell more than 4.5% to 9.8 euros in early Friday trades from a Thursday closing price of 10.28 euros, though they have since bounced back above 10 euros.
Stifel called the acquisition a “bold counter-cyclical move”, but a potentially beneficial one, given the bank’s 'buy' rating on Campari stock.