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Bacardi Limited (Bermuda/US)

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Bacardi is one of the world's biggest premium spirits, and the best-selling rum by far, with almost 50% share of the huge US market. As a result of Bacardi's success, and the purchase of several other brands including Martini, Dewar's, Bombay Sapphire and premium vodka Grey Goose, its parent company has become one of the world's top spirits businesses. Yet unlike virtually all of the larger competitors jostling it for position, Bacardi Limited is still privately controlled by the family which founded it over 150 years ago in Cuba. It has long been regarded as a prime candidate for merger with another company, possibly Brown-Forman, a distribution partner in several markets.

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Competitors

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Brands & Activities

Bacardi Limited's main asset is its eponymous flagship rum, one of the world's best-known spirits brands. Although the group has a sizeable collection of supporting products, none comes close to the core product in sales or reputation, or even geographical footprint. This may become more of an issue for Bacardi as the drinks industry continues its process of consolidation into just a few leading companies. Industry commentators have for many years fingered Bacardi as one of the likely predators, but so far the group has stayed clear of big deals. This is at least in part because of the difficulties involved in getting the numerous warring factions among Bacardi's extended family of shareholders to agree on any transformational acquisition. For 2015, Impact estimated Bacardi Limited's total premium spirits volumes at 32.3m cases, down almost 2% for the second consecutive year. It was the global #3 behind Diageo and Pernod-Ricard.

Bacardi lost its position as the world's #1 premium spirit by volumes to Smirnoff in 2005, but remains a true global giant with sales of around 17.4m cases in 2015, accounting for more than half of the group's total volumes and over 40% of the total global rum market. It is two-thirds larger by volumes than its nearest rum competitor (Diageo's Captain Morgan's). Impact estimated global retail sales of $2.46bn in 2014. Sales have been under pressure since 2012, slipping back from that year's record volumes of 19.8m cases. In the key US market, Bacardi's biggest by far, volumes slumped by more than 5% in 2014, and then by almost another 1% in 2015 to 7.2m cases (compared to 6.4m for arch-rival Captain Morgan).

The main product is Bacardi Superior (or Carta Blanca) white rum, but this is supported by an extensive family of other rums, although availability varies widely from market to market. These include Bacardi Carta Oro golden rum, Bacardi Black dark rum, premium Bacardi 8 and Bacardi 5 aged dark rums, high-proof Bacardi 151 (almost twice as powerful as the main product at 75% proof), premixed cocktails including Bacardi Frozen Daiquiri and Bacardi Mojito, and various flavoured rums including Bacardi Limon, Bacardi O (for orange) and Bacardi Razz (raspberry). The brand's flavour variants have become increasingly exotic: recent additions include Bacardi Dragon Berry (strawberry & dragon fruit), Torched Cherry, Coconut and "Grand Melon". Bacardi Oakheart is a spiced rum. The group also periodically issues limited edition special rums. A new high-end set of four were introduced towards the end of 2013 as the Facundo Rum Collection, honouring Bacardi's founder. These specially aged blends were marketed at prices ranging from $45 per bottle to $250 for Bacardi Paraiso, matured for 23 years and finished in a cognac flask.

The Bacardi range has also been strengthened by a selection of very popular pre-packaged single-serve Bacardi Breezers. Although they were first introduced in the US in 1989, they have enjoyed their greatest success in other markets, especially in Europe since the 1990s. In the US in 2001, Bacardi licensed brewer Anheuser-Busch to introduce Bacardi Silver, a single-serving malt beverage to compete with Smirnoff Ice. The drink is distributed and marketed in the US by Anheuser, which has also launched a number of flavoured follow-ups. In Germany and some other markets, the group markets another RTD product, lime-based Bacardi Rigo. Non-alcoholic Bacardi Mixers are produced under license in the US by Coca-Cola. The group sponsors various music-related or club-related events. One of the most prominent has been Bacardi B-Live, an international club and concert tour by dance duo Groove Armada. In 2007, the group hired Formula 1 racing driver Michael Schumacher as its first "global social responsibility" ambassador, to promote sensible drinking and to front a campaign against drink-driving. He was succeeded in 2011 by tennis champion Rafael Nadal.

The main premium competitors to the Bacardi rum brand are Captain Morgan and Cacique, owned by Diageo (10.4m and 2.7m cases respectively in 2015); Havana Club and Malibu, both owned by Pernod-Ricard (4.0m and 3.4m cases); Brugal, owned by Edrington (3.2m cases); Ron Barcelo (2.5m cases); Appleton (Campari, 1.3m cases) and Sailor Jerry (William Grant, 1.1m cases). There are also several substantial non-premium competitors including McDowell's No 1 from India and Tanduay from the Philippines (17.5m and 15.5m cases).

Although Pernod-Ricard controls international rights to the celebrated Havana Club brand, Bacardi has been engaged in a long legal battle with the French company over that name. Pernod is the commercial partner for the Cuban government, which claims ultimate ownership of the name. However, those rights haven't traditionally been recognised by the US government because of its embargo on trade with Cuba. Following a US court ruling in 2006 that the original Cuban Havana Club trademark had expired, Bacardi began reintroducing Havana Club in America as a super-premium rum. Pernod-Ricard challenged those claims and in 2010, Spain's highest court revoked Bacardi's claims to the name everywhere except the US. However, the ending of the US-Cuba trade embargo in 2016 led to a renewed threat to Bacardi's use of the Havana Club name. The group launched a new legal campaign to prohibit Pernod-Ricard's use of the Havana Club name in the US.

The Bacardi group has steadily accumulated a portfolio of other brands, although none of these matches the international appeal of Bacardi. Super-premium French vodka Grey Goose is the most valuable. It was acquired by Bacardi in 2004 from US independent Sidney Frank for a whopping $2.3bn. It demonstrated dramatic growth in the late 1990s and early 2000s, becoming the #3 premium vodka behind Smirnoff and Absolut, and the overall leader in the super-premium segment. Since 2008, however, growth has been less spectacular as a result of a move by consumers towards cheaper brands. Grey Goose describes itself as the "world's best-tasting vodka", and befitting its super-premium branding supports various A-list celebrity events, including the Cannes Film Festival and the Oscars. Volumes in 2015 were 4.0m cases (Impact), with a value of approx $1.47bn. Other vodkas in Bacardi portfolio include Eristoff (1.8m cases 2015 and value of approx $360m) and New Zealand-based 42 Below, acquired in 2006 for $103m.

Bacardi's whisky portfolio is now led by William Lawson's Scotch, sales of which jumped 11% in 2014 but were unchanged in 2015 at 3.1m cases (value of $585m in 2014). Former #1 Dewar's held steady at 2.7m cases (value of $580m in 2014). In 2015, Bacardi added bourbon to its portfolio with the purchase of niche brand Angel's Envy, which is now housed in the group's Incubation Brands unit, for more specialised high-end products. Also among the global Top 50 spirits in top-selling premium gin Bombay Sapphire, with sales of 3.3m cases (Impact 2015) and value of $605m in 2014. Other group-owned products include Martini and Noilly Prat vermouth, Martini & Rossi sparkling wines (or Asti Spumante), Otard cognac and Benedictine liqueur and Cazadores tequila. Elderflower liqueur St Germain was acquired in 2013.

Similar to the row over the Havana Club trademark, Bacardi was involved in complex legal action over a claim to a share in premium tequila Patron, which was founded in 1989 by haircare products entrepreneur John Paul DeJoria and his partner Martin Crowley. Following Crowley's death in 2002, Bacardi made an offer to acquire his 50% shareholding for $175m. This was, said Bacardi, accepted unconditionally by trustees of Crowley's estate. However, that offer was topped by a $755m bid from DeJoria, who claimed that a separate agreement between the two founders gave each first refusal on the other's shares. The two sides finally agreed a compromise in summer 2008. DeJoria became majority owner and chairman of Patron, and Bacardi acquired a 30% shareholding in the business for $482m. Patron is now one of the top 20 spirits by value, with volumes of 2.2m cases in 2015, and a 2014 value of $1.3bn. In 2018, Bacardi bought out Dejoria's 70% holding at a valuation of $5.1bn for the business.

Since 2000, the group has maintained a selective global alliance with US distiller Brown-Forman. Initially the companies teamed up to bid for the Seagram drink portfolio, but were outgunned by Diageo and Pernod Ricard. In 2002, they sealed a strategic partnership to combat Diageo's global dominance. Bacardi handles the distribution and marketing in several European territories for Brown-Forman brands including Jack Daniel's, Southern Comfort, Finlandia and Woodford Reserve, as well as for privately owned Drambuie liqueur. In Australasia, Bacardi's products were distributed and marketed by Bacardi Lion, a joint venture with Kirin's local subsidiary Lion Brands, for more than a decade until 2016. The venture was dissolved that March, with Bacardi establishing its own dedicated subsidiary in the region.

Financials

As a private company, Bacardi doesn't generally publish financial data. However, it declared net revenues of almost $4.6bn for fiscal 2014. The group's most important countries by value are the US, Spain, France, Russia, the UK and Mexico.

UK-based marketing arm Bacardi Global Brands reported turnover of £34.4m in the year to March 2015, and net profit of £2.5m.

Management

Former Gillette and P&G executive Ed Shirley succeeded Seamus McBride as CEO of Bacardi in 2012, but stepped down abruptly in Spring 2014. Mike Dolan, a Bacardi board member and former CEO of both IMG and Y&R, was initially appointed as interim CEO. He was confirmed as permanent CEO in early 2015, but two years later, announced plans to step down. His successor is Mahesh Madhavan, previously president, Asia, Middle East & Africa. He became regional president, Europe in Spring 2017 pending elevation to the top job. Facundo Bacardi, great-great grandson of the company's founder, is chairman.

Background

Spanish-born Facundo Bacardi Masso arrived in Cuba with his brothers in 1830, and began working as a salesman for a local rum distillery in Santiago. In his spare time he experimented with distilling lighter rums, but did little to exploit the results until the distillery's founder decided to sell up. In 1862, Facundo and brother Jose bought the business, renamed it Bacardi & Company, and launched their clear rum alongside the existing dark brands. Facundo's wife suggested the now famous "Bat device" as a logo after she noticed a colony of fruit bats living in the distillery. According to Cuban tradition, bats are symbols of good fortune, and the family hoped to borrow some of that luck. Whatever the reason, the company thrived.

By 1877, control of the business had passed to Facundo's son Emilio. At the time, Cuban nationals were becoming increasingly resentful of their dependence as a colony of Spain. Himself born in Cuba, Emilio Bacardi became heavily involved in political campaigning, and was repeatedly jailed during the 1880s. The movement for independence from Spain gathered momentum in the 1890s. Emilio was arrested again and sent into exile, leaving the company in the hands of his brothers who struggled to keep it running while political protest turned into a full-blown war of independence. The conflict with Spain was eventually resolved after Cuba won the support of America. Emilio was allowed back from exile in 1899, becoming mayor of his home town of Santiago in 1902 after the island was granted its freedom. In the years that followed Bacardi grew rapidly, opening bottling plants in Spain and the US. But the company's biggest boost came when the US government declared Prohibition, turning Cuba into a booming resort island, mainly because it was the nearest source of alcohol for booze-hungry Americans. The Daiquiri cocktail was invented at this time by American mining engineer Jennings Cox, while the US Army's Signal Corps are credited with mixing rum with imported Coca-Cola to create the drink known as Cuba Libre (or Free Cuba) in honour of its independence.

During the 1920s, the company introduced Hatuey, "the king of Cuban beer". The following decade saw the launch of new distilleries in Puerto Rico and Mexico. At the same time, following Emilio Bacardi's death, management of the company passed to his brother-in-law Henri Schueg. Inevitably World War II put a hold on the growth of the business, but the 1950s witnessed a massive surge in the international scale of the company. This was spearheaded by new company president Pepin Bosch, Schueg's son-in-law. By the end of the decade, Bacardi had become one of Cuba's biggest businesses. But as a result, it was also a principal target for a new wave of political unrest on the island, which finally exploded into revolution in 1959. Following Fidel Castro's overthrow of President Batista, all private assets in Cuba were seized by the revolutionary government. In the case of Bacardi, this was mainly the Hatuey breweries, since most of the company's rum was by now produced in Mexico and Puerto Rico. The family fled, and spent the early part of the 1960s rebuilding the business with new production facilities in Brazil, the Bahamas and Canada. To part-fund the reconstruction, 10% of the group's shares were floated. This led to a further rapid expansion of the business during the 1960s and 1970s, during which time Bacardi became the symbolic drink of the new international "jet-set".

But the scale of the group's business led to internal conflicts between the numerous family shareholders. By the 1970s, the company's shares were split between more than 500 family shareholders, all descendants of Don Facundo and his many sons and daughters, but also all divided over the size of each other's holdings. Pepin Bosch resigned in 1976 in one such dispute, and he and one part of the family sold their 12% shareholding to US drinks business Hiram Walker. International expansion continued, but so did the family squabbling, as new president Edwin Nielsen, Bosch's nephew, failed to hold the board together. In the 1980s, these squabbles were exacerbated by bad investments, losing the company $50m in 1986. New president Manuel Jorge Cutillas, another family member, oversaw a buyback of all non-family-controlled shares, costing some $241m.

The 1990s brought a completely new flavour to the business. The group relocated to Bermuda, and elected its first non-family president, former lawyer George "Chip" Reid, in 1996. But most important of all, the group spent $1.4bn in 1993 to acquire control of European spirits business Martini & Rossi. As a result of this acquisition, Bacardi gained a broad portfolio of spirits and liqueurs. The decade also saw the launch of Bacardi Breezers and Bacardi Limon, both hugely successful innovations, and the relaunch of Hatuey Beer in the US for the first time since the Cuban breweries were seized in 1960. After that, Bacardi bolstered its portfolio with other major acquisitions, including Dewar's Scotch and Bombay Gin in 1998 (from Diageo) for $1.9bn.

Controversy flared in 1999 with a court case over Bacardi's claims to another brand, Havana Club. Until 1959, this rum had been owned by another Cuban family, the Arechabalas, close rivals to the Bacardis for 100 years. But unlike the Bacardis, the Arechabala clan had no overseas interests in 1959. When the Castro government seized their distillery, they lost everything and had no money to re-establish their business in the US, or to renew their ownership of the Havana Club trademark in the US when rights lapsed in 1973. Instead the brand was re-registered as a commercial venture by the Cuban government. Nothing more happened until 1993, when the Cuban government transferred these rights to a new joint venture with French spirits group Pernod-Ricard, and launched the Havana Club rum everywhere except the US, because of that country's trade embargo with Cuba. Seizing the opportunity to get something of their heritage back, the remaining members of the Arechabala family tried to block the launch with the support of Bacardi, which introduced its own Havana Club in 1995. In the resulting lawsuit, a US judge upheld Bacardi's case, finding that the Havana Club name had been illegally seized by the Cuban government. In response Pernod Ricard took the case to the European Union, which backed the French company's case, and upheld its right to market rum under the Havana Club brand in Europe. The dispute is likely to drag on for many years.

In 1999 Bacardi revealed that it was considering a public offering of part of its stock in order to raise funding for further acquisitions. Pundits speculated that the group was preparing itself for a bid for Allied Domecq. However, the majority of shareholders failed to approve the plans, which were finally dismissed at the end of the month. The following year, in a move thought to be linked to the family's refusal to float the business, CEO Chip Reid resigned. Deals were back on the agenda in 2002. The company was reported to have been involved with talks for some time about some form of alliance with Allied Domecq. The question of altering the group's share structure to allow for a possible deal was revisited in 2003. Despite strong opposition from some family members, two-thirds of shareholders voted in favour of a plan to create a second class of non-voting shares which could be either floated or sold to a trade partner. Yet again, no larger deal materialized.

In 2004, the group's management team changed again. Chip Reid's replacement as CEO, Javier Ferran, quit the company in 2004, forcing chairman Ruben Rodriguez to take over that job as well until a successor could be found. Andreas Gembler, previously CEO of Philip Morris International, was finally appointed as CEO in May 2005, and Rodriguez stepped down from the group immediately afterwards, although he remains a director. Seamus McBride replaced Andreas Gembler as CEO of Bacardi in September 2008.

Former Gillette and P&G executive Ed Shirley succeeded Seamus McBride as CEO of Bacardi in 2012, but stepped down abruptly in Spring 2014. Stella David stepped down as global marketing officer in 2009 after 15 years in the role. She was eventually replaced in 2010 by former Unilever marketer Silvia Lagnado. She too left Bacardi at the end of 2012 and was succeeded in early 2013 by Andy Gibson.

Last full revision 3rd May 2016

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