Pernod Ricard: allied with Domecq?
Published:08-February-2005
By BR staff writer
Following the Wall Street Journal's suggestion last week that the French wine and spirits giant Pernod Ricard [RI.PA] may be looking to acquire its UK rival Allied Domecq [ALLD.L], rumors of a deal have continued to surround the companies. Although a deal is far from assured, there are certainly signs that the two players would fit well together.
Pernod Ricard has played down speculation of a takeover bid for Allied Domecq.
Pernod Ricard has so far refused to confirm or deny the rumors that it is plotting a takeover attempt for its UK based rival.
The wine and spirits industry remains a fragmented sector. Together, the four leading companies in the field have a market share of less than 20% of the global market, according to figures quoted in Le Monde newspaper. There remains, therefore, great scope for consolidation in the sector. To this end, Pernod attempted to buy the Glenmorangie whisky brand in 2004 although it eventually lost out to luxury goods company LVMH.
The acquisition of Allied Domecq would see Pernod Ricard's value increase to two-thirds that of Diageo, significantly strengthening its position. Pernod would obviously benefit from its increased size, allowing the company to spread its costs over even more markets, with the French company reportedly looking to grow its white spirit and new world wine offerings.
Furthermore, the wide variety of Allied Domecq's offerings would also strengthen Pernod's position. Currently, Pernod's portfolio is geared towards the premium end of the market, with its upscale whisky and cognac brands in particular showing impressive returns in emerging markets such as China. Meanwhile, Allied Domecq has enjoyed strong growth at its Quick Service Restaurants division, which includes fast food chains such as Dunkin Donuts. It may be that Pernod would view this as a useful addition to its business.
Yet given the similar market capitalization of the two firms, a merger of equals seems more likely than an overt takeover, and potential antitrust issues concerning markets where the two already have a sizeable presence, such as Spain, mean any deal seems unlikely to be finalized in the immediate future.
