The grand spirit sell-off

  • 2003-02-27
  • Matt Kovalick

Think fast: Name a popular vodka.

What came to mind, Absolut, Smirnoff or Finlandia? Perhaps Zubrovka or Stolichnya?

Anyone choose Stumbras? Probably not.

"That's the problem," said Antanas Malikenas, director for privatization at Lithuania's State Property Fund.

Despite Stumbras' dominance on the Lithuanian market, the vodka's brand recognition stops at the border. Also unknown are Lithuania's sparkling wines and assorted bitters, liquors and flavored alcoholic drinks.

To boost these libations' profiles abroad, the state has decided to make way for private investors and get out of the alcohol game by selling its shares in strong alcohol producers Alita, Anykscai Vynas, Stumbras, and Vilniaus Degtine.

Another important consideration: July 1 marks the end of the state's monopoly on alcohol production. Less than a year later, Lithuania is expected to join the European Union, and local companies will face stiffer competition on the common European market.

Uginius Trumpa, president of the Lithuanian Free Market Institute, said the spirits producers have performed well in a domestic environment protected by tariffs and monopoly.

But to compete with upstart Lithuanian companies and international producers, these distilleries need financial input, marketing know-how and a dramatic boost in exports.

And they've got to invest enough in brand development to carve out shelf space in duty free shops across Europe.

"In this business, brand name is everything," he said. By holding on to their shares, he said the state has deprived these companies of precious time to develop and promote their brands.

An ideal outcome, Malikenas said, would be for Lithuanian spirits to gain a profile abroad or for a popular Western brand to enter the local market and produce its own libations here.

In either case, "our people work and our companies continue to work," he said.

Many Lithuanians are undoubtedly hoping for the former. People here harbor a strong emotional attachment to the spirits, especially those native to certain regions such as Starka and bitter brandy Trejos Devynerios -- in English, Three Nines.

Starting on March 4, prospective buyers that meet the criteria for industry experience and annual revenues can purchase information detailing the four companies' financial health.

Offers must be made May 6-7, and negotiations with the winning bidders should be wrapped up by July 1.

"Each company has its own set of buyers," said Simonas Gustainis, corporate finance director for Suprema Securities financial advisers.

Selling points for the companies include expertise, good equipment and quality products already on the local market.

But in addition to low exports and brand recognition, all four are plagued by high costs, especially considering number of employees to liters produced.

Stumbras, the Kaunas-based distillery, is the largest and most profitable of the quartet. A 91 percent stake will be offered at a starting price of 107 million litas (30.5 million euros) and could appeal to international industry heavyweights with ambitions to secure a foothold on the local market.

Stumbras controlled 52 percent of Lithuania's strong alcohol market in 2002, selling more than 10 million liters of spirits. The best-selling Lithuanian vodka brand is one of 50 spirits in the company's portfolio. The company also makes ethanol, a fuel additive.

Suprema reported that Stumbras functioned at just one-third of its 30-million-liter capacity last year, and the new owner is expected to maximize production to increase export potential.

Also on offer is a 83 percent share in Alita, which dominates the Lithuanian sparkling wine market, at a starting price of 50 million litas. The company has already invested 25 million litas in production. Gustainis said local or German investors are likely to be the most interested.

Anyksciu Vynas, a wine producer, and Vilniaus Degtine, a popular vodka, will start at 10 million litas and 5 million litas respectively. Analysts say both are bargains, though they come with recent net losses, existing liabilities and smaller total assets.

Anyksciu vynas may prove a good match for local investors or foreign producers with a similar tradition of fruit- and berry-flavored wines.

New owners of Vilnius Degtine would have to increase efficiency and sales, Gustainis said.