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Swede Deal Makes Cruzan Rum Stock Jump

June 7, 2005 – A deal to sell the controlling interest in Cruzan rum to the producers of Absolut Vodka could bring more money into Virgin Islands' coffers, a company official said Tuesday.
By teaming up with the producers of Absolut, "We will be able to sell more rum and bring more money back to the V.I. government," said Ezra Shashoua, the chief financial officer of Cruzan Rum.
Last week, an agreement was signed in which the Trinidad-based Angostura Ltd., the rum company's controlling stockholder, will sell its stock in Cruzan to V&S Vin Spirit AB, an international wine and spirits company run by the government of Sweden. Since 2003, Cruzan has had a distribution agreement with V&S, which produces Absolut.
The approximately $122 million sale to V&S is expected to close before Sept. 30.
That news resulted in Cruzan Rum's stocks almost doubling in price. According to a SmartMoney.com article entitled "Absolut Windfall," Cruzan Rum stocks hit an all-time high — shares soared from $14.05 Friday to $26.31 on Monday.
V&S is acquiring 67.8 percent of the shares of the rum company, which employs 60 workers on St. Croix and is headquartered in Palm Beach, Fla.
Shashoua said Cruzan Rum has been experiencing excellent growth recently. "For fiscal year 2004, growth was 25 percent. For the first six months of this fiscal year that ended March 31, it was 30 percent. Prior to that time, growth had been averaging over 20 percent," he said.
The only bad news was a second quarter loss. According to SmartMoney.com, Shashoua said that loss was attributable to a considerable amount spent on marketing, advertising and promotions, including the sponsorship of a Kenny Chesney country music concert tour. The rum's popularity has grown just as Chesney has become one of the United States' most popular entertainers. Chesney was recently married to actress Renee Zellweger on St. John, a wedding that attracted worldwide media attention.
The distillery started on the island in 1760, exporting rum worldwide. However, it was not until after 1933 and the end of prohibition that the distillery began running continuously.
Shashoua said a deal under discussion with the V.I. government that would give the Cruzan Rum Company $24 million to promote its product is not connected with the deal with the Swedish company.
"This deal is a win-win for the citizens of the USVI and Cruzan. The more Cruzan grows, the more money is transferred from the United States to the Virgin Islands," he said.
The V.I. government receives a portion of federal excise tax paid by consumers in the United States for rum produced in the Virgin Islands. This amounted to $78 million last year.
A press release from Cruzan Rum said the company expected to keep its current management and, until the closing date, its current board of directors.
Jay S. Maltby, Cruzan chairman and chief executive officer, said in the release, "Angostura has been an extremely supportive controlling shareholder, and we regret the end of our relationship. We are, however, extremely excited to have the opportunity to continue to work with, and have the further support of V&S, one of the premier worldwide beverage alcohol brand marketers. We expect that the sale of controlling interest to V&S will now position the Cruzan brand into a much wider international distribution network."
Maltby continued, "The price paid by V&S validates the shareholder value the company has built as a result of our efforts to develop and market the Cruzan brand both in the U.S. and throughout the world."
The Cruzan company changed its name last month from Todhunter International to reflect its flagship brand. While it only produces 600,000 cases of the rum market's total of 19 million cases, Cruzan is the No. 4 selling premium rum, behind Bacardi, Captain Morgan and Malibu, Shashoua said.
The SmartMoney.com article quoted Irwin Michael, portfolio manager at ABC Funds, a mutual fund group in Toronto, as saying, "The Swedes are spending $121 million. That's a big premium, and the fact is they aren't buying it to lose money. It's the fastest-growing rum brand."

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