Spirits firm Allied Domecq has agreed to a takeover bid from smaller rival Pernod Ricard, subject to agreement from Allied shareholders. The French company will pay 670 UK pence a share for Allied, valuing it at GBP7.4bn (US$14.2bn). When the deal completes in July, Pernod will sell several Allied brands to US-based Fortune Brands for GBP2.8bn, primarily as a way of funding the takeover.
Pernod will gain Allied's Ballantine's Scotch whisky, its Beefeater gin, its Kahlua liqueur, its Malibu rum and its Stolichnaya vodka. Fortune Brands will add Allied's Canadian Club, Maker's Mark and Laphroaig whiskeys to its existing Jim Beam and Knob Creek brands. It will also gain Courvoisier cognac, Sauza tequila, and Allied's US wine business.
The most immediate benefit of the takeover will be cost-cutting: by eliminating duplicate sales and marketing operations, Pernod says it will save €300m each year. Fortune will also make cost savings. However, the deal also provides Pernod with strong scope for growth.
The acquisition cements the French firm's position as the main serious rival to Diageo outside the US, while also allowing it to compete effectively in North America for the first time. With the acquisition of Kahlua, the US's number two liqueur, Malibu, the number three rum, and Stoli, the second-ranked import vodka, Pernod now has strong brands in all major US spirits categories.
Increased US presence is vital for Pernod's growth prospects, partly because the US is the only developed-world spirits market to show significant growth. But full category coverage also has another major benefit: spirits in the US are distributed by independent local distributors, who often do not share brand owners' goals. Diageo overcomes this problem by signing deals with its distributors to market Diageo brands exclusively - and Pernod is now in a position to follow suit.