No Pain, No Gain: Why I've decided to call time on Allied Domecq

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The Independent Online

I will, in the next few weeks, call time on the shares of Allied Domecq, the wine and spirit giant. I will do so with some reluctance. After all, the stock was an early recruit to the No Pain, No Gain portfolio, and it has performed astonishingly well.

I will, in the next few weeks, call time on the shares of Allied Domecq, the wine and spirit giant. I will do so with some reluctance. After all, the stock was an early recruit to the No Pain, No Gain portfolio, and it has performed astonishingly well.

Still, I do not intend to hang around until the present takeover saga draws to a close. I feel it is worth waiting a little while to see if a bid battle does materialise. At risk will be the 20p or so that Allied shares are above the 670p offered by the French drink group Pernod Ricard, with a little help from Fortune Brands of the US.

I alighted on Allied at the equivalent of 238p a share in May 1999. It was then a rather different company from the one since fashioned with rare skill by its chief executive, Philip Bowman. The group's pub estate (a legacy from its days as a leading brewer) was about to be sold, after a riveting punch-up, with the shareholders all collecting cash as well as shares in the old Bass brewing empire.

As the world's second- largest wine-and-spirit group, Allied must have felt that it was safe from hostile bids. But, without the protection of major family shareholders, it is a hostage to market forces. On the other hand, Pernod Ricard, with an archaic capital structure, enjoys a large degree of protection.

Indeed, it is an indictment of European big business - and a criticism of the selective approach of the European Union - that a major company such as Pernod Ricard can shelter behind bearer shares that, if held for 10 years, double their voting strength. This dubious ploy means that the Ricard family - and friends - could command approaching 40 per cent of the capital after the Allied deal.

Allied will be hung, drawn and quartered. Its brands will be split between Pernod and Fortune with, perhaps, other drink producers getting in on the act in a bid to keep the world's regulators at bay.

The same process will occur if Constellation Brands, a US group, manages to put together with friends a counter offer. It could, it is suggested, bid around 750p a share. Bacardi, LVMH and Suntory are also in the frame. And don't be surprised if the behemoth of the industry, Diageo, gets involved.

The higher the bid, the more chance that shares (or some other security) will make up a stronger element of the price. Pernod intends to offer around 20 per cent of its 670p shot in shares. I cannot imagine any private British investor wanting to hang on to shares in the French group.

The full bid document has yet to appear. It may contain details of how small shareholders can get rid of their Pernod share entitlement at no cost. If a deal is not on the table - and only a mix- and-match facility has so far been mentioned - then sell in the stock market.

I certainly do not want to be lumbered with Pernod shares, particularly in view of the group's bizarre capital structure. In addition, there will invariably be problems over dividend payments and, no doubt, when the shares are eventually sold. And it's a pint pot to an old penny that investors in Paris will be more attuned to developments at the drinks group than their counterparts in London.

Still, the Pernod set-up does underline that long- established companies often need an element of protection if they are to survive in the dog-eat-dog corporate world. I was surprised to see that Young & Co, one of the most traditional of brewers, had bowed to pressure and is introducing a new stream lined capital set-up. I wonder how long before the Young family control is eroded and the company becomes vulnerable to a hostile strike. Such a development could be a long time coming, but under the old structure, Young & Co seemed forever safe from marauders.

The stock-market ranks of the old-style "beerage", the pub-owning brewers such as Young & Co, is testimony to the ravages of takeover mania. There are now only six fully quoted companies, compared with around 70 when I first started in the City.

In those days, beer was a major stock-market influence. Two of the survivors, Fuller, Smith & Turner and Hardys & Hansons, enjoy family protection. They are successful operations and yet they would probably have fallen to unwanted bids but for family support.

Belhaven, the Scottish brewer, has no such backing and is, perhaps not surprisingly, expected to be a takeover victim with Wolverhampton & Dudley Breweries or Greene King, the largest players, rumoured to be interested.

"Wolves", as if emphasising its thirst, is swallowing little Jennings Brothers, the only brewer with a presence on the Alternative Investment Market (Aim). The founding Jennings family departed years ago.

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