Hard Spirits

Liquor Maker Underberg Sells Bonds, Austrian Champagne Business, to Bolster Bottom Line

Underberg family directors Hubertine Underberg-Ruder, Emil Underberg and Christiane Underberg July 2014. Source DPA
The German bitters and drinks group Underberg is led by three family members, from right Christiane Underberg and her husband, Emil Underberg, and their daughter, Hubertine Underberg-Ruder.
  • Why it matters

    Why it matters

    Cash-strapped German distiller is tapping the bond market and selling a champagne maker in Austria as liquor sales slow and debt comes due.

  • Facts

    Facts

    • Underberg’s best seller, its herbal digestive bitters, accounts for one-fifth of sales.
    • Sales at the company, based in Rheinberg, Germany, fell 7.5 percent in fiscal year 2013-14.
    • The firm sold €30 million worth of minibonds paying a nominal 6.125 percent interest.
  • Audio

    Audio

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Underberg, the financially pressed liquor distiller, has received a fresh infusion of cash. After selling its Viennese champagne winery, Schlumberger, the family-owned firm is selling a new bond to pay off more than €70 million ($94 million) in investor loans that are due in April 2016.

The company – best known for its strong after-dinner cordial, Underberg herbal bitters – is suffering from slow sales across the liquor market. The rating agency Creditreform also issued a “concentrated risk” warning on a previous refinancing. Put bluntly, Underberg would have had to come up with a lot of money all at once.

Underberg is getting €33 million for selling a majority of shares in Schlumberger to a holding company owned by the German-Swedish entrepreneur Frederik Paulsen Jr. More money is expected from the sale of property the company owns.

For the fiscal year 2013-14, Underberg reported a decline in sales of 7.5 percent, to €119.3 million. Its earnings before interest, taxes, depreciation and amortization were €7.4 million.

In addition, €30 million is coming from the new bond offered to institutional investors. At 6.125 percent interest, it yields one percentage point less than the previous loan.

That means Underberg can buy back the older securities at rates lower than 102.5, the company’s executive manager, Wilfried Mocken, told Handelsblatt. The bond is currently traded at 106. Mr. Mocken said there was much interest in the new bond and that part of the money raised would go to enhance foreign operations.

Among those on board is the German Small- and Middle-Sized Business Fund, which has invested around €400,000 ($537,000) in the newly issued bond.

“We consider Underberg to be well-prepared for the future after costs have been reduced and the equity-to-assets ratio raised by the sale of Schlumberger, among other things,” said Hans-Jürgen Friedrich of KFM Deutsche Mittelstand AG, which initiated the fund.

 

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The German drinks and bitters group borrowed €70 million through a private placement payable in April.

 

Underberg had gone public with Schlumberger in 1986. Now some people in the market are skeptical about the timing as the distiller relinquishes its traditional stake in the company.

“I wouldn’t be selling the crown jewels if things were going well in the operational business,” said a fund manager who did not want to be named.

Mr. Mocken, however, said the Schlumberger deal was not forced by financial distress: “We weren’t in a situation where we had to sell.”  He said Schlumberger didn’t fit the company’s portfolio because business was good only in Austria, but not in Germany.

For the fiscal year 2013-14, Underberg reported a decline in sales of 7.5 percent, to €119.3 million.  Its earnings before interest, taxes, depreciation and amortization were €7.4 million.

Christoph Kapalschinski and Michael Brächer are editors at Handelsblatt. They can be reached at kapalschinski@handelsblatt.com and braecher@handelsblatt.com

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