Pernod Ricard and Brown-Forman have reportedly held early-stage talks on a potential deal that could see the French group buy its fellow spirits giant.
Shares in the Jack Daniel's maker were up more than 20% in the wake of a Bloomberg report that said the two spirits giants had held "initial discussions".
According to Bloomberg, which cited unnamed sources, Pernod is exploring a possible acquisition of its US peer. The two companies have had early-stage talks about a possible "combination", the business news outlet said.
Just Drinks has approached Pernod and Brown-Forman for comment.
Following the Bloomberg story, Reuters also reported that the two spirits giants had held talks over a "possible merger", according to a source familiar with the matter.
A deal would bring together two of the world's largest distillers. As well as Jack Daniel's, the Brown-Forman product range includes Herradura Tequila and Diplomático rum. Pernod, the world's second-largest spirits group behind Diageo, owns brands including Beefeater gin, Absolut vodka and Chivas Regal whisky.
The spirits industry has faced pressure on consumer demand, particularly in major markets including the US and China.
Last month, Pernod reported a 15% drop in its net sales in the US, a decline the company attributed to the “soft” spirits market in the country. The US made up 17% of the company’s net sales in the period. Group sales were down 5.9% organically and 14.9% on a reported basis at €5.3bn ($6.11bn).
"Consolidation given the industry slowdown makes sense," Stefano Di Napoli, the founder of the UK-based Consumer Products Growth Strategy consultancy, said. "Pernod Ricard is strong in vodka and aperitifs, while Brown-Forman brings premium American whiskey, creating low overlap, so it can make sense from a portfolio perspective. It can also help Pernod’s weak US position with a strong local. The main concern is Brown-Forman’s high inventory levels, driven by slowing demand and how they will deal with it."
Earlier this month, Brown-Forman booked its financial results results for the nine months to 31 January, the company saw its reported net sales fall 2% to $3.08bn, Net sales in the US declined 8% and by 1% organically.
The Brown family holds around two-thirds of the voting control at the Woodford Reserve brand owner. The company's voting structure leads TD Cowen analyst Robert Moskow to see the group as "an unlikely seller" He also pointed to Brown-Forman's "track record of rebuffing past acquisition attempts", including a reported approach from Constellation Brands nine years ago.
Moskow added: "The Brown family even proactively drafted a 'constitution' (printed on a bourbon label) in 2010 with the intention of keeping the business under family control. The family also has deep roots in Kentucky, making resistance not purely economical, but also social and political.
"That said, we believe the board and family may be more receptive than they have been in the past given persistent spirits industry declines. We also see the industrial logic of consolidation in the spirits industry because growth has slowed, which means that the leaders need to evaluate alternative ways to create value, such as cost synergies."
Shares in Brown-Forman were up 18.02% at $27.76 at 17:13 GMT today. Pernod's shares were down 5.73% at €59.94 at 17:37 CET.
