Rum talk from PM, say union leaders
Caroni Rum Distillery Photo: Stephen Doobay
...Caroni’s aged rum stocks valued at up to $6 billion
Express - September 24, 2000Unions seek talks with chairman
By Raffique Shah
NEW information in the hands of the Independent shows that two recent valuations of Caroni’s aged rum stocks put its 18,146 casks of rums at between $1 billion and $6billion, depending on whether the cash-strapped sugar company sells its stocks as bulk rum or as blended aged rums. At least one of these reports was done by a foreign expert in the field (who valued it at $6b) and was presented to the company’s board of directors, which, in turn, will have passed it on to Minister of Agriculture, Trevor Sudama.
And according to well-placed sources, the Agriculture Minister is obligated to present such information to the Cabinet. Last week, Prime Minister Basdeo Panday heaped scorn on Opposition Leader Patrick Manning’s claim that the Government planned to sell off Caroni’s distillery to “its friends at Angostura” for a fraction of its real value.
The Government has taken a formal decision to divest 49 per cent of the plant and its bonded warehouses and Angostura is known to be the “preferred partner”. The Laventille based company first offered to buy the 49 per cent for $13 million. It then improved its offer to $25 million, and later $35 million. Following protests by a number of trade unions and even senior management officials over the proposed sale at what is seen as a ridiculously low price, yet another valuation is currently being conducted. But, according to Washington Demas, vice-president of ATASS, which represents senior staff, “signals coming from the Prime Minister are not encouraging”.
“Mr Panday either does not know anything about rums, or he does not know what’s happening in his own backyard,” said Demas, “or it could be that since he moved up into the Johnny Walker Blue high society he has forgotten everything about Caroni’s aged rum stocks, or rum in general. If he knew anything, he will not have told AmCham members that our aged stocks are valued at less than $100 million!”
Demas was among a number of unionists who were livid after Panday, speaking to members of the American Chamber of Commerce at a meeting last week, slammed Opposition Leader Patrick Manning’s platform statement that 49 per cent of Caroni’s rum division, which had stocks valued at close to TT$1 billion, was being offered to Angostura at $35 million.
According to reports from the AmCham meeting, Panday said that Caroni’s “own estimate of its rum stocks is considerably less than $100 million. Based on the quantities supplied by the Leader of the Opposition and his aggregate of close to a billion dollars, an economist has calculated that a bottle of Old Cask or Felicity Gold would sell for over $400. Check out your numbers,” he urged his audience.
However, documents in the hands of the Independent show that the Prime Minister is way off target, and that two valuations of the company’s aged rum stocks put the values at between $1.2 billion and $6 billion, depending on what industry experts describe as “intent of product”. A report prepared for Caroni by Thomas Fuchs, a recognised valuator of rums, dated August 9, 2000, which was submitted to the company’s board of directors, put the “total case value” of its aged rum stocks at US$934,522,349.18. Converted to TT dollars, that will be just over $6 billion.
Another in-house valuation that the Independent obtained, which was said to have used “very conservative numbers” and which put the value of a 750ml bottle of rum at TT$25, estimates the total “case value” (wholesale price) at TT$1,250,350,130.00. This valuation, which an ATASS source said was done “very recently”, gives the breakdown from casks to cases to bottles. One cask, for example, yields 275 cases, which, when bottled, amounts to 3,307 bottles. Caroni has in its bonds 18,146 casks. These will yield 5,001,401 cases of rum, or 60,008,822 bottles of blended products.
“You should note that a bottle of rum is conservatively estimated at $25,” said Jai Ramkissoon, president of SISA, the association that represents middle-level staff at Caroni. “It does not in any way reflect the true market value of products that could range from $40 a bottle to as high as $700 a bottle for 15-years aged rum. When Panday suggested that using Manning’s estimates, a bottle of ordinary rum will have to be sold for $400, it was he, not Manning, who did not do his sums right. And I wonder if he remembers that Angostura put out a special 15-year-old last year that the company sold at $675 a bottle? My understanding is that all that rum was lapped up by elite consumers.”
Employees with decades of service at Caroni who formed the backbone of Panday’s support upon his entry into trade unionism and politics back in 1973/74, say he has “damned the bridge he crossed”.
“After using sugar workers to ride to prominence, and later Prime Minister, he is looking to shaft Caroni today,” a group of them told the Independent. “The distillery could prove to be the saviour of the industry. Why is he so eager to undervalue our rum stocks? Is it that he now wants to sell out our patrimony to his new-found friends at Angostura?”
Efforts to contact Caroni chairman Joe Ramkissoon were unsuccessful.
THE Joint Staff Associations of Caroni Limited and Ticfa, the main body representing cane farmers, have written to the company’s chairman, Joe Ramkissoon, requesting a meeting with the board to discuss the proposed sale of the distillery. The letter was dispatched last week, but a reply was not had up to Tuesday last.
Spokesman for the group, Jai Ramkissoon, said that while the unions do not oppose divestment or going into partnership with Angostura or any other company, “they must come good”. He said an offer of $35 million for 49 per cent of the distillery, reportedly made by Angostura, was “peanuts”. “If that’s what they propose to sell half of the distillery for, then we, the unions, will raise that capital to purchase it. We raised this with Jerry Hospedales of the Divestment Secretariat, but he told us that bids were invited and we did not bid. How could we, when we thought whoever was trying to partner Caroni would cough-up more at least $500 million? We don’t have that kind of money.”
Ramkissoon and Washington Demas of ATASS explained that there was no problem with a joint venture partner, providing he or she “brings something to the table”. “If our rum stocks are valued at between $1 billion and $6 billion, isn’t it fair for a partner to come in with at least $500 million? Are we asking too much?” Demas pointed out that Angostura’s six-month profits dropped from $22 million in 1998/99 to $10 million in 1999/2000. “(Lawrence) Duprey said that in his report. But he did not give the reasons. We know what accounted for that drop. Angostura invested in new plant and machinery to the tune of millions of dollars, but they then faced a frontal assault from Caroni’s White Magic rum. In addition, Angostura has struck up strategic alliances with, or bought out, companies like Todd Hunter in Florida, St Lucia Distillers and a company in Holland.”
Demas said that Angostura badly needed aged rums to service its own operations as well as meet its commitments to its foreign partners. “That’s their main interest in Caroni. And I repeat, we have no problem with them—except they must put something of value on the table. Are they in a position to penetrate new markets for us? I doubt it, since they can’t find foreign markets for their own products.”
The Independent was told that sometime recently, Brown Foreman of the US, the third largest spirits manufacturer/distributor in the world, sought to forge a strategic alliance with Caroni. The company was willing to plough in capital to allow Caroni to upgrade its plant, machinery and bonded warehouses (it’s short of space to store aged rums), in return for the right to buy Caroni’s aged rums, blend and brand them and sell them on markets they controlled. “But someone sabotaged those talks and I believe we lost a great opportunity. They didn’t offer a paltry $35 million, nor did they want control of management the way Angostura does. So we would have made substantial profits through that alliance.”
Demas also said that a plan by the distillery management that was prepared for the board was never presented to it because a senior member said the Government had already decided to divest the company. “At least they could have looked at the proposal. It showed where the distillery, if it is given the proper tools, could turn around the fortunes of Caroni.” He said the company needed to understand the biggest cost in selling rums and penetrating new markets must be spent on promotion and marketing.
In fact, the most recent in-house valuation allows for 60 per cent of revenue to be allocated to production, promotion and marketing costs. The remaining 40 per cent will be profits. Based on this new report, which considered only three-to-five year-old stocks, the company could realise profits of over $500 million over the next few years. “But they need to allocate capital for a new plant that will cost around $20 million, and another $30 million to start aggressive marketing both at home and abroad.”
The unions say there is no way they will allow the Government or Caroni to part with the distillery for $35 million. “That’s like taking the life blood of sugar workers and cane farmers and giving it away to a stranger to save his life! Angostura does not need to be saved. But Caroni does, since more than 15,000 people are dependent on the industry.”
Aged rums worth their weight in gold
.....how alcohol is valued, blended
ALTHOUGH Caroni’s rum division, now known as Rum Distillers Limited, controls only about ten per cent of the local rum market, its aged rum stocks are far bigger and superior to Angostura’s. And that’s the main reason why the giant rum manufacturer wants to get its hands on Caroni’s distillery, senior officials at the sugar company believe.
“In order to understand how rums are valued, you need to understand many aspects of the business,” a senior company official told the Independent.
“Firstly, we must be the only company in the region that has some rum in casks that are over 25-years-old. Though these are few, they are worth their weight in gold. The company also has a significant amount of 10-to-15 year-old rums, which is also very valuable. And the remaining stock is made up of three-to-five year-old rums, which also have their value.”
The process of blending rum starts with the product one wants to put on the market. Caroni currently has a 15 year-old blended rum, Legend 2000, that was done as a “limited edition”, and which will sell for upwards of $600 a bottle. On the other hand, its three-year-old rums will retail at around $40 for a 750ml bottle.
When rum is blended, the manufacturer uses 20 per cent of pure alcohol and mixes that with distilled water. Of the 20 per cent alcohol, 20 per cent of that comes from the aged stock one wants to market. So, for example, if you are marketing a 12-year-old special, a mere four per cent of the contents (20 per cent of 20 per cent) comes from 12 year-old casks. The remaining 16 per cent is “new” pure alcohol (which does not carry anything close to the value of the aged stocks). And then distilled water is added before the product is bottled and sold.
“So that when you buy, say, a 20 year-old rum at anything close to $1,000 a bottle, only four per cent of that is actually 20-years-old. But that is what gives the rum the smooth taste the connoisseur recognises and pays for,” the source said. He explained that that was what accounted for the high value applied to Caroni’s rum stocks. “If, however, you sell rums by the casks to foreign manufacturers, who would in turn blend, label and market them as prime products, they, not you, will make the real profits.”
The Independent understands that the current valuator who is from the Main Rum Company of the USA has asked for more time to complete his work since when he came here he was under the impression it was to value 1,800 casks. “He was shocked to learn that we have 18,000-plus casks. He said it would take longer. It’s an intricate process, since you have to give different values. You give the company a value based on casks, then another based on cases, and yet another based on bottles. This is what is referred to as ‘product intent’. And it’s why you have such vast disparities in valuations.”
Copyright © Raffique Shah