(MENAFN- AFP) US activist investor fund Elliott has taken a stake in Pernod Ricard, the world's second-largest drinks group, and has urged management to improve its performance, including by considering a merger.
Elliott Management Corporation is known for buying up stakes in publicly-listed firms and then pushing management to change its strategy or undertake other actions aimed at improving profitability -- or at least the share price so investors maximise income.
The fund announced Wednesday it had bought a stake of more than 2.5 percent in Pernod Ricard, and said that "inadequate corporate governance and a lack of outside perspectives" at the family-controlled firm had contributed to its financial underperformance compared to competitors such as Britain-based Diageo.
In addition to its namesake liqueurs, Pernod Ricard also owns Beefeater gin, Havana Club rum, Mumm champagne as well as Absolut vodka. Its shares shot 5.9 percent higher on Wednesday.
"Elliott believes operational and governance improvements would allow Pernod to unlock much of the value that the company is capable of delivering, improving the strength and sustainability of the company for all stakeholders," it said in a statement.
In a letter to Pernod's management, a copy of which was seen by AFP, Elliott went much further, suggesting it consider a merger.
"...the board should remain open to opportunities made possible by an industry well positioned for further consolidation, including a merger with another large spirits player in order to deliver additional value to shareholders...", said the letter.
Elliott, whose investment in Pernod Ricard is worth around a billion euros (over $1 billion), added that it had identified measures that could unlock 500 million euros in annual savings that could help the firm boost profits.
A source close to Elliott said that the fund's goal is not a merger, but a change in strategy by management to become as or even more profitable than rival Diageo within three years.
The firm responded by noting that the strategic changes adopted within the past three years were bearing fruit and sales were increasing.
"We are a Group with strong family values committed to long-term value creation," said CEO Alexandre Ricard in a statement.
"Our strategy is working and is the right one combining short-term profitability and sustainable, profitable and responsible growth under a consistent and long-term roadmap," he added, noting the firm had created more than 11 billion euros of value over the past three years.
Pernod's shares drifted 0.4 percent lower on Thursday in an overall flat Paris market.
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