Rustam Tariko, the second vodka producer in the world, Roust Corporation is selling the Polish subsidiary of CEDC for $1 billion, plans to pay off its debts and hold an IPO. Why does this not guarantee Tariko a return to the Forbes list and what could prevent the deal?
In 2011, the founder of Russian Standard group, Rustam Tariko, who was worth $1.5 billion according to Forbes, purchased 9.9% of Central European Distribution Corporation (CEDC). Ten years later, his holding, Tariko Roust Corporation, agreed to sell 100% of CEDC to the Polish food manufacturer Maspex, known in Russia for Tedi juice. The deal, announced by Roust, is valued at PLN 3.89 billion (around $1 billion) and requires approval from Polish regulatory authorities.
Rustam Tariko was last listed on Forbes in 2015. What is the current state of his business and what can he expect after this major deal?
alcohol scale
Roust is the second largest vodka producer globally after Diageo from the UK. Żubrówka vodka, produced by CEDC, is among the top 3 most popular vodka brands worldwide, alongside Khortytsya and Smirnoff.
Roust has not released reports since 2019. Forbes mentioned that over 34.2 million 9-liter boxes were sold in 2020, and 15 million in the first two quarters of 2021. Gross revenue from sales in 85 countries surpassed $2.3 billion in 2020. Net sales volume, excluding excises, was not disclosed.
According to a report from the American investment bank Stifel in April 2020, Roust earned $1.95 billion in revenue and $794 million in net sales during the first three quarters of 2019. Net sales for 2019 totaled $811 million.
Following the sale of CEDC, Roust's business will undergo a significant reduction, with 54% of its revenue coming from the Polish subsidiary. For $1 billion, Maspex will acquire two vodka distilleries, three licensed warehouses, and a portfolio of Polish brands: Absolwent, Żubrówka, Bols, Royal, and Soplica.
What will Tariko keep? A Roust spokesperson stated that following the deal, the group will maintain all of its Russian brands, including key global ones like Russian Standard, as well as other leading vodka brands such as Talku, Parliament, Green Mark, Cranes, and others. Roust will also continue to distribute brands like Remy Cointreau, Jägermeister, and EJ Gallo. The deal is expected to positively impact the company's Russian business. After significantly reducing its debt burden, the company plans to focus on growing its Russian business and global brands.
Debt and IPO
The deal with Maspex will substantially reduce Roust's debt burden for Rustam Tariko. In 2016, Tariko agreed to a restructuring with the holders of Roust bonds in default, amounting to $650 million. This led to a reduction of Roust's debt to $385 million, with bondholders receiving 38.6% of Roust's capital. Tariko's share decreased to 61.4%.
Stifel reported that Roust had a net debt of $759 million in 2019, which has been completely repaid.
In 2016, one of the conditions for the restructuring was for Roust to have an IPO within two to three years. Minority shareholders were given the right to sell their shares preemptively. Additionally, there was an agreement that if the company's value reached $899.4 million during the IPO or if minority shareholders sold 90% of their shares, Tariko would receive 2% of the newly issued shares as a reward. If the company's value was higher at the time of the transaction, Tariko could claim an additional 3% of the shares, receiving 1% for each $250 million increase in value.
Roust has delayed its IPO twice, with the most recent postponement in March 2020 during the coronavirus pandemic. In April 2020, Interfax reported that the IPO was planned for November 2021. According to Roust's statement to Forbes, the group continues to consider an IPO for its remaining alcohol business within 2-3 years after implementing planned initiatives to increase profitability, subject to favorable market conditions after reducing debt.
Stifel estimated the potential cost of Roust (including CEDC) at only $105 million in the spring of 2020, based on the lowest EV / EBITDA multiplier value among alcohol companies, which was 8. At that time, other companies in the industry had significantly higher multiples, such as Diageo's EV/EBITDA of 17.73.
Russian problems
Throughout the years that Tariko was on the Forbes list, his main asset and source of his multi-billion dollar fortune was not the alcohol business, but the Russian Standard Bank. In 2020, JP Morgan estimated the bank's value (based on capital less intangible assets) at only 24.9 billion rubles.
Long-term litigation continues around the bank. In 2015, Tariko reached an agreement with the holders of Russian Standard bonds for $550 million on restructuring, exchanging two issues maturing in 2020 and 2024 for one issue maturing in 2022 with a 13% coupon. To secure this debt, Tariko provided a pledge – 49% of the shares of Russian Standard Bank. However, Tariko defaulted on securities in 2017, and since then, the bondholders have been trying to recover the collateral.
In 2020, a shareholder and trustee of Citibank attempted in a Russian court to recover 49% of the bank's shares but was unsuccessful. However, the lawsuit is ongoing, and in October 2021, the Arbitration Court of the Moscow District overturned previous decisions and sent the claim for a new trial. Shortly before this decision, the investment company A1, which is part of Alfa Group, claimed ownership of more than 30% of defaulted bonds, stating that the debt of Russian Standard Ltd, including the accumulated interest, is $ 850 million.
Can the litigation over Russian Standard bonds affect the deal between Roust and Maspex? The bank now owns about 28% of the Tariko alcohol company. A1 declined to comment on the sale of Roust’s alcohol business. A source familiar with the circumstances of the trial believes that the transaction will be challenged in the event of the bankruptcy of Russian Standard, for example, if the bankruptcy trustee represented by the DIA considers that as a result of the transaction, assets were withdrawn from the bank or an unequal counter performance was received for the asset. “Even without bankruptcy, the elimination of CEDC will significantly affect the balance sheet of Russian Standard. The recent victory of defaulted bond holders in the cassation and the imminent realization of collateral in respect of 49% of BRS shares will lead to the fact that the new owners of the block of shares will demand a review of the transaction or transfer of money to the bank. In any case, Tariko risks losing this money, ”says the Forbes interlocutor. Roust did not respond to a question by Forbes about whether litigation in Russia could affect the deal to sell the Polish business.
