Courvoisier deal leaves bitter taste as Campari shares slip

By Elisa Anzolin and Valentina Za

MILAN (Reuters) -Campari shares fell as much as 6% early Friday on news it will spend $1.2 billion to buy French cognac brand Courvoisier - the Italian spirits group's biggest deal yet, but one that will hurt its profit margin in the short term.

Campari has a track record of breathing new life into declining brands, analysts said, adding the deal made sense. The group is betting on re-establishing Courvoisier as a "global icon of luxury", it said, making the cognac brand a key part of its growing spirits portfolio.

But Courvoisier will initially take around 80 basis points off the group's gross profit margin, according to executives, while Campari will fund the high price tag via a mix of cash, debt and equity.

"The acquisition was expensive and to finance it Campari could issue equity-linked instruments" said Angelo Meda, portfolio manager at Banor SIM in Milan, on why the shares fell.

Campari is buying one of the world's top four cognac houses - from U.S.-based spirits group Beam Suntory - at a time when demand in Courvoisier's biggest market, the United States, has fallen from post-COVID peaks and wholesalers are de-stocking.

Over time, Campari believes the deal can boost group sales by 9% and earnings per share by 2%.

It also hopes the deal can build its presence in key markets such as the United States and China - critical to the group becoming a more serious contender to larger rivals.

"Things are going to get worse before they get better," said Bernstein analyst Trevor Stirling in a note, adding the deal was strategically attractive and Campari executives were experienced with cognac.

In the long-term, they can "sprinkle some Campari stardust" on Courvoisier's marketing, putting the brand in a good position to benefit from favourable long-term trends that could boost cognac, he continued.

The deal will initially be financed in full through an up to 24-month bridge loan provided by a group of banks.

Once it completes, cognac will become the fourth largest leg of Campari's business after aperitifs, bourbon and tequila.

Campari's shares had recovered to stand down 2.1% at 0910 GMT.

(Reporting by Valentina Za and Elisa Anzolin in Milan; Additional reporting by Emma Rumney in London; Editing by Sharon Singleton and Mark Potter)