2 Bala Plaza, Suite 300
Company Perspectives:
CEDC is one of the leading importers and distributors of alcoholic be verages in Poland.
Although a public company listed on the NASDAQ that maintains its hea dquarters in Bala Cynwyd, Pennsylvania, Central European Distribution Corporation (CEDC) operates in Poland, where it imports and distribu tes nearly 800 brands of beverages and other products. CEDC maintains 52 regional distribution centers in Poland's major urban areas, dist ributing its products to some 20,000 outlets, including hotels, resta urants, bars, nightclubs, supermarkets, gas stations, and duty free s tores. The company's product mix includes imported and domestic beer; Polish vodka, which accounts for three-quarters of all sales; import ed spirits, including vodka; wines; soft drinks, including water; and cigars. Over the years, especially early on, CEDC tried its hand at importing a number of products but focused on spirits because of the prodigious drinking habits of Poles. The 2005 acquisition of Polish d istilleries has positioned the company to move beyond distribution to production, giving it the potential to become a powerhouse in the co mpany's liquor industry.
Background Leading to Founding in 1990
CEDC was founded by William O. Carey and his partner Jeffrey Peterson . A Wisconsin native, Carey moved to Florida where in the 1950s he be came a dairy farmer. In the late 1950s he began exporting cattle to S outh America, but it was not until he became partners with Jeffrey Pe terson that he began expanding his horizons to the global market, a m ove that would one day lead the pair to Poland. Peterson had seen a g ood bit of the world, as a child visiting Guatemala with his grandmot her, a United Fruit Company teacher. After a tour of duty in Vietnam he attended the University of South Florida in the early 1970s and ea rned credits by spending several quarters traveling to such countries as Greece, Egypt, and Ecuador. Upon returning to the university he r ented a house from Carey and the two became friends. At the time, 197 6, Carey was shipping cattle to Costa Rica on propeller-driven DC-3 a irplanes, and on occasion Peterson tagged along for weekend getaways. Peterson then went to work on the political campaigns of Ronald Reag an and George H.W. Bush and launched a company that taped speeches. A fter selling it he approached Carey about going into business togethe r. "I said, 'You've been sending cattle to South America, but you oug ht to form a company and we'll go after the world,'" Peterson recalle d in a 1999 interview with the Sarasota-Herald Tribune. "Bill said, 'Okay, as long as it doesn't cost me anything.'"
In the early 1980s Carey and Peterson formed Carey Agri International and began shipping cattle, mostly dairy, around the world. Business in Nigeria was good until a military coup took place and their partne r, the country's oil minister, was imprisoned. In the mid-1980s Carey Agri began shipping dairy cattle to Iraq, which was then at war with Iran. Following the end of that contract in 1987, the company did sm aller deals in Morocco, Egypt, and the Philippines. Yet when the Unit ed States ended a shipping credits program, and tariff restrictions c ontinued, Carey Agri began searching for a market offering new opport unities. In January 1990 the company decided on Poland, and later in the year formed Carey Agri International Poland Sp. z.o.o.
With the fall of the Iron Curtain in the late 1980s the former Soviet Block countries attracted Western businessmen. Poland was much quick er than Russia and other Eastern European countries to adapt to the W estern free enterprise system, due in large part to the influence of the Solidarity labor movement. Carey and Peterson were already famili ar with Poland because they had previously bought cattle there. They were also familiar to the U.S. Department of Agriculture, which helpe d Carey Agri establish itself in Poland through the embassy, becoming one of Poland's first private exporters. Peterson and a translator n amed "Ziggy" now began to travel across Poland buying cattle from sta te-owned farms and later individual farmers. During the course of his travels Peterson took note that nowhere in the country could they fi nd a cold beer. In the first year the company bought 10,000 cattle, a s well as some horses, which were then shipped to such countries as C roatia, Italy, Serbia, Slovenia, Turkey, and Yugoslavia for use as fo od.
Chance Encounter in Early 1990s
During this time Peterson took a trip to Paris to attend a food show. Tired of talking to cattle people, Peterson wandered around and met up with some people who worked for Australia's Foster beer. Fond of A ustralians from his Vietnam days, Peterson enjoyed a few beers with h is new friends, who soon convinced him to buy a couple truckloads of beer to sell in Poland. When he returned to Poland, Peterson sold the 4,000 cases in an hour. Sensing an opportunity he scrounged 100,000 cases of Foster from Spain, then ordered 32,000 cases of Grolsch, 20, 000 cases of Michelob, and 50,000 cases of Busch. He also convinced t he struggling Pittsburgh Brewing Company to make "American Beer" on a n exclusive basis for Carey Agri.
At the same time that Carey Agri was beginning to make the shift from cattle to spirits, the company received a new man in Poland, Carey's son, William V. Carey. The younger Carey had graduated with a degree in economics from the University of Florida in 1987 and was an aspir ing professional golfer who failed to make it on the South African to ur and other small tours. After his father, who was sponsoring his go lfing career, urged him to get a real job, Carey decided to join Pete rson in Poland, expecting to stay just two or three months. He would end up relocating to the country, marrying a Polish woman, and starti ng a family.
The decision to distribute beer proved to be well timed, given that i ncreased competition in the cattle business had virtually eliminated any chance for a profit, prompting Carey Agri to exit that business. In addition to beer, the company for a time tried importing any numbe r of products, including used cars, but it was beer that Poles wanted . According to the Tampa Tribune, "there were moments in the e arly years when running a liquor business in Poland was the equivalen t of running a saloon in Dodge City. 'You had to watch your back,' Pe terson said. 'The KGB was still around, and it was unclear whether Ru ssia would try to come back in. ... It was like the wild, wild West.' " The company also faced problems with the government. At one point t axes on imported beers were significantly increased, and the company managed to pull strings to get a major shipment through under the pre vious rate. Although it was just a one-time arrangement, the higher t axes did little to blunt the company's momentum. Carey Agri added imp orted spirits and wines, catering to the Poles' increasing preference for beverages other than the country's traditional vodka. When Polan d began to accelerate the privatization of retail outlets in 1993, th e company was quick to establish a distribution network that could of fer next-day delivery service. Over the next four years it opened sev en branches to provide regional coverage. Because of Poland's inadequ ate road infrastructure, however, the company had to limit the number of distribution branches it operated. It concentrated on the country 's major cities, serving in particular the country's fast growing cha ins of hypermarkets (combination supermarket and department stores). To make sure it was not dependent on the transportation services of l ocal companies, which were hardly established ventures, Carey Agri be gan assembling its own fleet of delivery trucks.
Carey Agri became the exclusive distributor of a number of brands, th en took a major step in 1996 when it began to distribute domestic vod ka in Poland. In that same year, the company formed an alliance with United Distillers, which produced Johnnie Walker, in a deal that incl uded financing. Carey Agri looked for additional funding in 1997, whe n it also suffered a severe setback, as the elder Carey was killed wh en a train struck his car near his Florida farm. His son succeeded hi m as chief executive officer and chairman of the company, and continu ed to operate from Poland. In the United States, Peterson would maint ain the company's legal headquarters in Alexandria, Virginia, later m oving to Sarasota, Florida, and finally to Bala Cynwyd, Pennsylvania. The need for a U.S. headquarters was part of the company's next step : going public to raise funds needed to acquire rival distributors.
Taken Public in 1997
In September 1997 Central European Distribution Corporation was incor porated in Delaware and the Carey Agri operations were folded into it . Arranging an initial public offering of stock proved difficult, how ever. According to Business Week in a 2005 article, "CEDC was a tough sell. Carey and Peterson pounded on the doors of more than 20 investment banking houses in New York. All of them took a pass. 'The y didn't know Poland, and the business was small,' Carey recalls. 'We were ready to give up.' Then New York Investment banking boutique Br ean Murray & Co. took a flier on Carey, helping him raise $10 .8 million in an IPO in 1998."
Also of note in 1998, CEDC opened its first retail store, soon follow ed by two others. The company also began carrying such products as Ca mus Cognac, DeKuyper Liquers, Dunhill Cigars, and Evian Water. All to ld, in 1998 the company recorded sales of $54 million, the start of a period of exceptional growth as CEDC began acquiring other compa nies to expand market share. In March 1999 it acquired Multi Trade Co mpany for $2.9 million and stock, picking up Poland's largest dis tributor of domestic vodka as well as expanding the distribution of C EDC's other products to northeastern Poland where Multi Trade was bas ed. Its increased size also provided CEDC with a pricing advantage wi th suppliers. Two months later CEDC spent $1.8 million and issued another 100,000 shares of stock to acquire The Cellar of Fine Wines Sp. z.o.o., a major importer and distributor of premium wines. With t he addition of a number of fine wines, CEDC created an opening to sel l its beer and spirits portfolio to better restaurants, bars, nightcl ubs, and hotels.
In the early 2000s CEDC continued to expand its operations. In early 2000 it acquired Jama Co. in a $5.2 million cash and stock deal t hat added 2,000 customer accounts and bolstered CEDC's position in we stern Poland, a key market enjoying strong growth because of its prox imity to Germany. Also in 2000 CEDC became the exclusive supplier of beer, wine, and spirits to CPN, Poland's largest operator of gas and convenience stores with 1,400 outlets, of which 800 sold alcoholic be verages. In addition, CEDC looked to spur sales by becoming Poland's first e-commerce company, launching a web site to sell products direc tly to consumers. The acquisition of competing distributors continued in 2001 and 2002. Astor Sp. z.o.o. was added in April 2001, strength ening CEDC's business in north central Poland. In April 2002 Damianex S.A., a distributor in southeastern Poland, was purchased for approx imately $9 million in cash and stock, as AGIS S.A., a distributor in northern Poland, was acquired at the cost of $6.7 million in cash and stock. CEDC completed three acquisitions in 2003, paying  6;1.8 million for Dako Galant, a distributor in northwest Poland; pic king up Panta Hurt Sp. z.o.o., a Warsaw-area distributor for $2 m illion; and Multi-Ex Sp. z.o.o., a distributor in the city of Kalisz, at a cost of $1.45 million in cash and stock.
CEDC continued in 2004 to identify and acquire key regional distribut ion companies. It paid $1.6 million for Miro Sp. z.o.o., based in Poland's second largest city, Miro, and nearly $2.4 million for Polnis Distribution, strengthening CEDC's position in Poland's third largest city, Lodz. In 2004 CEDC also acquired Saol Sp. z.o.o., a maj or distributor in the Krakow region. As a result of its acquisition s pree, CEDC generated sales of $580 million in 2004 and net income of $21.8 million.
CEDC took important steps in 2005 to establish itself as a manufactur er and a player in the international spirits market. It forged a stra tegic alliance with French company Remy Cointreau, then negotiated th e $270 million purchase of Bols Sp. z.o.o., Poland's third larges t distiller, from Remy. Later in the year CEDC agreed to pay $312 million for a 61 percent interest in Polmos Bialystok, a government owned distiller and Poland's second largest vodka producer. Also in 2 005, CEDC acquired Delikates, a central Poland distributor, the addit ion of which solidified the company's position in the western part of the country. It was an important part of the continuing strategy to dominate the Polish market, but was clearly overshadowed by CEDC's mo ve into production. To help finance the distillery acquisitions, the company took on considerable debt, issuing $396 million worth of euro bonds to help pay for the purchase. CEDC had the potential to be come a regional powerhouse, perhaps fulfilling a longstanding goal of doing business in such neighboring countries as Hungary or the Czech Republic, but whether it could succeed with its new strategy remaine d to be seen.
Principal Subsidiaries: Carey Agri International Poland Sp. z. o.o.; Multi Trade Company Sp. z.o.o.; Mira Sp. z.o.o.; Fine Wines and Spirits, Sp. z.o.o.
Principal Competitors: Carlsberg A/S; Heineken NV; SABMiller p lc.
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