France's Pernod Ricard won a hotly contested auction on Monday to buy the maker of Sweden's Absolut vodkafor 5.63 billion euro ($8.87 billion), beating favourite Jim Beam bourbon-maker Fortune Brands.
The win gives the world's second-largest wine and spirits company control of one of the biggest and fastest-growing spirits brands -- half of which is sold in the United States.
The sale of state-owned former monopoly Vin & Sprit, which makes Absolut, is the centrepiece of Sweden's largest-ever push to privatise state assets.
The Swedish government said Pernod had outbid rival candidates but the company said a key factor had also been its pledge to keep V&S's headquarters in Sweden.
U.S. spirits maker Fortune Brands , Bermuda-based Bacardi, and Sweden-based private equity group EQT had also been in the running to buy the Swedish drinks group.
Pernod Ricard said it expected synergy benefits of 125 million to 150 million euros before tax, with no impact on earnings per share in the first year after the purchase but a significantly positive effect thereafter.
The deal is Pernod's biggest expansion move since the 2005 purchase of Britain's Allied Domecq for $13 billion but relies heavily on new debt.
The company unveiled a 12 billion euro syndicated loan to pay for the deal and to refinance existing debt.
Pernod shares fell 4.3 percent to 65.16 euros by the market close.
The shares have fallen 16 percent this year, underperforming the food and beverage sector by almost 6 percent.
Iconic Brand
Fortune is smaller than Pernod or Bacardi, but its 10-year distribution deal in the key U.S. vodka market for Absolut, which runs to 2012, had made it a front-runner, according to people involved in the sale.
Fortune said it had not seen "appropriate return" for its shareholders at the announced price, and that it would start repurchasing up to 15 million of its own shares.
Absolut is the jewel in V&S's crown with sales of 10.7 million 12-bottle cases in 2007.
It is the world's fourth best-selling international spirit brand behind Diageo's Smirnoff vodka, Bacardi rum and Diageo's Johnnie Walker scotch.
"It is an iconic brand ... which has strong links with creativity and modernity and a unique angle. It is one of four brands above 10 million cases (in annual sales) and is the largest premium brand worldwide," Pernod's Finance Director Emmanuel Babeau told analysts in a conference call.
"We expect Absolut to have a moderate growth rate in the U.S. and strong growth outside the U.S.," he said, when asked about the impact of a slowdown in the U.S. economy.
Pernod was keen to buy a leading vodka to fill a hole in its drinks portfolio, but kept its options open by talking to the Russian authorities about buying the rights to Stolichnaya outside Russia where it already distributes the brand.
Pernod said the V&S deal would mean the end of its distribution of Stoli.
Sweden said the deal would be closed by the summer at the earliest.
"We got a very good price, to the benefit of the public economy, as well as a very good industrial home for the company," Minister for Local Government and Financial Markets Mats Odell said in a conference call. "The businesses will remain intact and both production and marketing will continue in Sweden and the Nordic region."
The Swedish government said Pernod was buying all of V&S except the Swedish firm's 10 percent stake in Beam Global Spirits & Wine.
The Swedish state will divest the Beam shares in a deal with the firm's principal owners during the coming months.