Mark-down, Mark-up: Kauffman to save CEDC?

Will wine market pioneer Mark Kauffman save CEDC? It’s all secret now. On the February the 18th a well known vodka and wine baron Mark Kauffman, the former owner of a wine importing company Whitehall and the inventor of the famous Kauffman vodka and many other brands,  signed a confidentiality agreement with a vodka producer CEDC (Central European Distribution Corporation). The secrecy is explained by the ongoing negotiations on the Kauffman’s offer of up to $75m investment of his personal funds to help the Polish company survive and pay its current debts and payments on loans and bonds.

A small backgrounder: CEDC is one of the largest producers of vodka in Russia: Nielsen reported it controlled 12% of the Russian market in September 2012. With a consolidated revenues of $1,1 bn in first 9 months of 2012 and pure income of 8,3 bn (source: Kommersant) the company owns such brands  as Zelenaya marka (The green mark), Parliament, Zubrowka. Another big shareholder of CEDC is the “Russian standard” – ROUST Inc., belonging to a multimillionaire Rustam Tariko, whose plans to save the company from the bankruptcy are not clear.

Mark Kauffman is a true pioneer of the Russian fine wine market despite his recent — mostly vodka — projects. He founded Whitehall wine importing business back in 1992 as soon as the post-soviet market began to open doors to imports of wines and spirits. Whitehall’s and Kauffman’s legendary role in establishing the wine culture in Russia is beyond any doubts especially his role in the first imports and the popularization of  the New World wines like Chile and Australia.  For more than a decade Whitehall was co-owned by Moet Hennesy Group together with Kauffman flourishing on the fast growing brands like the Hennessy cognac and Moet Chandon champagne, but also importing a wide selection of both affordable and premium wines from all over the world – such as the famous Concha y Toro, South African Kumala, Argentinean off-trade giants Pascual Toso and Trivento and many others including French, Italian and Spanish wines.

In 2010 Kauffman “broke up” with Whitehall and sold it to CEDC together with Kauffman vodka brand, the most expensive exclusive vodka in Russia at that time gaining not only money (around $344 m) but also a substantial share of CEDC itself (about 1,5% initially, later achieved 9,4% as of 2013).

The relations of Tariko, the major shareholder of the company, and CEDC board of directors have not been easygoing. In 2011 he bought 9,5% stake of the Polish company offering support in alcohol business  in Russia – it was just one of his acquisitions of the time (the same year he bought 70% of Gancia – a famous Italian producer of sparkling wines and vermouths). Following mediocre financial results in 2011 of CEDC, Tariko was demanding to increase his control of the company financial side apart from being a non-executive president of the CEDC’s board. Kauffman believed that this decision will be advantageous to Russian Standard only – allowing it acquire its assets if CEDC goes bankrupt.

On March the 15th 2013 CEDC will either have to pay its obligations or go bankrupt on the payments. A few days ago Mark Kauffman published his letter to the CEDC Board on the U.S. Securities and Exchange Commission website offering his help. On the February the 18th the negotiations were stated confidential and closed to the public eye. Will Mark Kauffman, the general of alcohol market, save the company?