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
PROMOTED VIDEO
News
Jamie and Emily Pharro discovering their friend's prank
video
News
i100
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
people
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Daniel Radcliffe and Zoe Kazan in What If
filmReview: Actor swaps Harry Potter for Cary Grant in What If
News
Our resilience to stress is to a large extent determined by our genes
science
Travel
travel
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Pornography is more accessible - and harder to avoid - than ever
news... but they still admit watching it
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

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Sales Performance Manager, Gloucester - £290 p/day

£200 - £290 per annum + competitive: Orgtel: Sales Performance Manager, Key Ba...

Junior Database developer (SQL, T-SQL, Excel, SSRS, Crystal rep

£25000 - £30000 per annum + bonus+benefits+package: Harrington Starr: Junior D...

Java/Calypso Developer

£600 - £800 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, ...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment