Krug Champagne Bought by LVMH

The acquisition-hungry Bernard Arnault, head of luxury goods conglomerate LVMH Moet-Hennessy Louis Vuitton, has acquired Krug from French liquor group Remy Cointreau.

According to today's announcement, LVMH paid a magic number -- one billion francs ($175 million) -- for the world-renowned Champagne brand, founded in 1843.

Krug was bought through LVMH subsidiary Moet-Hennessy, reinforcing LVMH's position as the world's largest Champagne company. Moet owns such luxury brands as Moet & Chandon and its prestige cuvee Dom Perignon. LVMH also owns several other Champagne brands: Veuve Cliquot Ponsardin, Canard Duchene, Ruinart, Mercier and Pommery.

LVMH said that the Krug family will continue to manage the Champagne house, which has 50 acres of vines and produces at least 42,000 cases annually of highly distinctive wines, many vintage-dated, including the elegant vineyard-designated Clos du Mesnil.

The steep price paid by LVMH can be attributed to a strengthening market for prestige wine brands, but also to Krug's huge stock of mature and maturing Champagnes, estimated at about 300,000 cases. Under the direction of brothers Henri and Remi Krug, the house has pursued a policy of quality. All Champagnes in Krug's lineup (except Krug Rosi) age for at least six years on their lees, or sediments, in the cellars before release, making them distinctively rich and flavorful. Krug bottlings age beautifully for over a decade after release, and have a cult status among aficionados who are willing to pay triple-digit prices for these exclusive wines.

With this new trophy, Arnault takes another step toward his goal of making LVMH the world's foremost luxury brands company. In 1996, LVMH made an offer to buy Chateau d'Yquem, the world's most famous sweet wine estate, for 503 million francs (more than $100 million at the time)--a seeming bargain compared to the Krug acquisition. That deal has been held up in the courts. Last year, Arnault himself and a Belgian associate bought Chateau Cheval-Blanc, the famed Bordeaux estate. Arnault also received much media attention this month after LVMH increased its stake in the Italian luxury-goods company Gucci, reportedly with the intention of gaining control of the firm.

Remy Cointreau, which owns the Remy Martin cognac and Cointreau liqueur brands, said in a statement on Thursday that the sale of Krug fit with the company's strategic plan and will be used to pay off debt. The company has been struggling as of late due to slumping cognac sales and an unprofitable distribution network. Last September, Remy Cointreau agreed to sell another Champagne brand, Venoge, to LVMH. However, in the statement, the company said it intends to hold onto and develop its two remaining Champagne brands: Charles Heidsieck and Piper-Heidsieck.

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