Blog: Chris Brook-CarterThe worst kept secret

Chris Brook-Carter | 7 April 2005

“Every six months we see some smoke rising from Paris,” Allied Domecq CEO Philip Bowman said in an interview earlier this week. “After five years, people have seen it so many times they have started ignoring it.”

After following up “leads” on Allied’s potential sale to Pernod for over half a decade, I was beginning to count myself as one of those sceptics. This week's announcement, then, that Allied and Pernod are in takeover talks was not only a surprise but also something of a relief.

In a statement, Allied Domecq confirmed that Pernod, the world's third-biggest spirits group, was working on a potential offer with US group Fortune Brands.

“These discussions are at an early stage and there can be no certainty that an offer will ultimately be forthcoming,” Allied, whose brands include Ballantine’s whisky and Beefeater gin, said in a brief statement.

The question, then, at long last, is not will they, but can they?

The market has for so long anticipated a potential tie-up between Pernod Ricard and Allied that the benefits to both, in terms of distribution and scale, and the potential pitfalls of cost and competition issues have been poured over time and time again.

But the arrival of Jim Beam Brands owner Fortune Brands adds a new dimension to the speculation. Partnering with Fortune will certainly allow Pernod to approach the twin hurdles of cost and competition with more confidence.

Allied’s current market capitalisation is around GBP5.76bn, while Pernod’s lies at GBP5.14bn and analysts believe Allied may command a sale price around the GBP7.5bn mark - too rich, perhaps, for Pernod on it own. And, once a deal is done, Pernod and Fortune will be able to break up Allied, with the French group filling in gaps in its own portfolio, by taking brands such as Stolichnaya, while avoiding overlaps that might concern competition regulators.

The press has reported that Pernod would like to get a deal recommended by Allied’s board by the end of the month. This remains an extremely complex deal, however. And yet, as Pernod has proven in the past with the Seagram acquisition, it has the personnel and experience to see it through.


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