Still see final Pernod buyout by end of 2021Pernod Richard has a market cap of about $55 billion and a P/E ratio of 27. It has a projected earnings growth rate of 7 percent.
Corby has a market cap of under $600 million, no debt, and a current P/E ratio of 16. It's earnings have grown 28% this year....but likely because of reduced marketing costs.
In September Corby pays $55 million cash to Pernod - for the 5 year marketing deal throgh 2026.
Pernod can borrow long term money at 2 percent per year.
Corby has an ultra clean balance sheet - is a true cash cow. Pernod is already getting dividend income from Corby - which is included in Pernod's 27 P/E ratio. Corby's earnings are "more valuable" to Pernod's market cap than they are to Corby as a standalone company. If Pernod can acquire the other 50% or so of Corby it does not own - even at a 30 percent premium to the present stock price - and fold the remaining 50% earnings of Corby into its own 27 P/E ratio - it will be like acquiring the rest of Corby for free.given the likely future market appreciation of the Pernod stock (earnings valued at 27x in terms of Pernod stock price).
It is just a matter of time.Actually, it should have happened long ago -- but Pernod wants the $55 million cash from Corby it gets in September 2021 to book separately as 2021 profits. Thus, the acquisition should happen after September 2021 when Corby pays the $55 million to Pernod -- Pernod books that $55 million payment as income for 2021 -- and thereafter Pernod acquires Corby -- after pulling out the $55 million cash first.
The acquisition does not even have to be for cash.....frankly, I would accept a merger or stock for stock at some ratio with Pernod....although Pernod probably wants to keep Corby as a separate wholly owned subsidiary for lots of reasons as it keeps Hiram Walker that way as well.
It all makes a lot of sense to me -- and I am not particularly bright. So it should make a lot of sense for Pernod's management to do this as well -- as I assume they are smarter than I am and thus fully appreciate this strategy.