Business Analysis: Macdonalds drink to £125m profit from sale of Glenmorangie

Soaring share price and rising sales prompt disposal of iconic Scotch brand

The Macdonald family that has controlled the Glenmorangie whisky company for 86 years has decided there is more to life than the mists, woods and waters of the Glen of Tranquillity, from which the iconic whisky takes its name and where it has roots going back 300 years.

The Macdonald family that has controlled the Glenmorangie whisky company for 86 years has decided there is more to life than the mists, woods and waters of the Glen of Tranquillity, from which the iconic whisky takes its name and where it has roots going back 300 years.

With shares at record highs and volumes of its single malt whisky growing, the family wants to cash in its 52 per cent shareholding. This will spark the sale of the company, which has not changed hands since 1918 and is the last independent, publicly quoted Scotch whisky company. Its sale signals an opportunity for more consolidation in the £3bn UK whisky market.

Glenmorangie is one of the best-known Scotch brands in what has been a fragmented and slowing industry. It claims to be the top malt whisky brand in the UK, but vies for the title with Glenfiddich, which is owned by William Grant & Sons. It also claims to be the third-biggest malt whisky brand in the world. Whisky has been distilled in the area on the banks of the Durnoch Firth since 1703, where Glenmorangie is handcrafted by the "Sixteen Men of Tain".

The Macdonald family got involved in Glenmorangie in 1918 when Macdonald and Muir, a wine and spirits merchant, bought the company. The last Macdonald to run the business was David Macdonald, who retired as chairman in 1995, although Alison Macdonald is its company secretary. Even if the company was to be sold at a small premium to the current share price, they stand to gain more than £125m for their stake.

Paul Neep, the chief executive of Glenmorangie, said yesterday: "The Macdonald family shareholders are getting pretty old - most of them are in their 70s. It makes sense for them to exit now while they can control the process and while the company is doing so well." The company reported a 10 per cent increase in profits in May this year to £9.57m, with sales up 6 per cent at £68.8m.

At the top of the list of candidates to buy the company are Brown-Forman, the US drinks giant behind the Jack Daniels brand, and Bacardi. Brown-Forman already owns a 10 per cent stake in Glenmorangie, and has a brand distribution agreement with the Scottish company. Bacardi has a similar arrangement, through which Glenmorangie uses the strength of the Bacardi sales and marketing network around the world to push its brands in to regions outside the UK. "The company has done well with these tie-ups to boost its sales capacity," James Dawson, an analyst at Charles Stanley, said yesterday. "The family must think there is little else they can do with the business - it's been well run and is outperforming its peers. But in terms of buyers, you already have two companies involved with the business. They would have to be the main players in looking at the company. An outsider could come in, but what would they do with the other companies?"

But Rothschilds, the advisers to Glenmorangie, will undoubtedly have invited Diageo, Allied Domecq, and Pernod Ricard to take a tour of the distillery. These three multi-national wine and spirits groups have soaked up most of the Scotch market in recent years and are estimated to control about 75 per cent of Scottish distilleries, with brands such as Johnnie Walker, Teachers, Bell's, Ballantine's and Glenlivet between them.

The Scotch market falls into two distinct camps - the higher-premium single malts for purists, and blended whiskies. Blended whisky, of which the biggest brand is Diageo's Bell's, dominates the sector, accounting for about 77 per cent of volumes. But growth in the whisky market has slowed through the 1990s, as the drink fell out of favour in the fad for ready-mixed alcopops, which appealed more to female customers. The primary drinkers of Scotch are men aged over 45, with younger people of both sexes preferring to drink imported American whiskey brands such as Jack Daniels, rather than associate themselves with the contents of anything that stocked their parents' drinks cabinet. The growth of supermarkets and their buying power has also led to price discounting and a commoditisation of whisky.

Sales of blended whisky have been in decline as companies have failed to attract new drinkers. But malt whiskies are proving more popular again, and production figures show that volumes of malt whisky are increasing. Analysts at Mintel believe malt whisky is growing at 10 per cent a year in terms of volume.

Outside the dominance of the multi-nationals, Scotch malt whisky, produced in the time-honoured tradition, is still big business for many family owned and private companies. The Scotch Whisky Association (SWA) still has 55 members, representing 27 parent companies, and it reports a surge in interest in malt whisky.

The problem for the whisky companies is that not many of its potential customers are even aware of the difference between malt and blended whiskies. So companies have been stepping up their investment in the history of their brand and their unique distillation process. Glenmorangie, for example, devotes acres of its marketing material to its use of waters from the Tarlogie Springs and American White Oak casks, which have already been used to age bourbon. This is a tradition that dates back to leaner times for distillers, who recycled casks filled with sherry, port and brandy that had been imported on to their shores.

Campbell Evans, of the SWA, said yesterday: "A few years ago, the bigger companies were only interested in their brand at the top level, and sold off their distilleries to others. But we are now seeing people come in to distilling for the first time, and investing and rejuvenating them. 2003 was our second best year ever for exports and malt exports were up 12 per cent in value. People want to tell a story about their whisky - give it an identity and why it is different to others," he said.

The opening up of other markets, such as in China, is also likely to bring about a real boost in demand. India at present has levied a 500 per cent tariff on imported whisky, making it impossible to sell. But in Korea, Taiwan and other areas of Asia, Scotch has a strong appeal.

Glenmorangie's leading position in the malt market means that it will prove attractive to buyers looking for a brand steeped in Scottish history. But while it does have a strong investment case, on Charles Stanley's forecasts, Glenmorangie is already trading at about 23 times earnings. Mr Dawson said: "This is pretty high, given that there are few cost savings any buyer could make out of the business and the business is already running at full capacity." He believes that Glenmorangie will find it hard to persuade a buyer to pay much of a premium for the business.

Diageo may find itself blocked from taking on any more Scottish distilleries, given its dominance in the arena. Allied Domecq's focus has been on building its premium wine business, and so it is seen as less likely to be interested in taking on Glenmorangie. Pernod Ricard, however, will likely take a very good taste of what is on offer, and other, private distillers could well be interested. The Sixteen Men of Tain can expect to be working overtime while the bid process matures.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor