Blog: Chris Brook-CarterWhat now for consolidation?

Chris Brook-Carter | 27 July 2005

Is the sale of Allied Domecq the end of an era in more ways that one? Clearly there is the passing of one of the giants into the history books, but does this also mark the end of a period in the industry's history that was characterised by massive deals and consolidation?

The sale of Allied, by many, is thought to be the last of these huge transactions, which in the last decade have seen the birth of Diageo and the rapid ascent of Pernod Ricard to the number two spot in the global standings. It is an end brought about not by the will of those companies that remain, but because of a lack of available takeover targets.

This thought led to a conversation with one of my contacts in the French wine and spirit industry where, playing devil's advocate, we came up with an alternative scenario where consolidation still drives these news pages.

This hypothetical situation involves Diageo putting in a bid to acquire Rémy Cointreau. This marriage between the French and British drinks groups is not without logic.

Diageo and Moët Hennessy have decided to end their joint venture Schieffelin & Somerset, leaving MH USA alone to distribute Hennessy and Moët. Diageo needs a big Cognac in its portfolio, specifically in the US, where it is a profitable and growing category. The company's wine portfolio would also look more complete with a Champagne amongst its ranks. Rémy offers one of the very few solutions to this problem, a solution that Diageo could also easily afford.

Furthermore, like that other French-owned luxury business Taittinger, Rémy's owners may be predisposed to listening to a good offer, as many shareholders are being hit by the huge luxury tax on equity (Impôt de Solidarité sur la fortune).

Then there is Maxxium. Until now this distribution venture between V&S, Jim Beam Brands, Edrington and Rémy has worked well. However, the Allied sale may change the dynamics of this joint venture, with Jim Beam Brands’ products now coming into direct competition with its allies. A buy-out by Diageo of Rémy from this partnership could solve all this.

Finally, with the dollar looking as if it might get stronger against the euro, Diageo may have a good chance on getting a return on its investment in the French group within a reasonable timeframe, as Rémy produces in euros and for a large part sells in dollars on the US market.

Remember, you heard it here first.


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