Diageo secures takeover of Seagram with sale of Malibu

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The Independent Online

The world's largest drinks group, Diageo, sealed its $8.1bn (£5.7bn) joint purchase of Vivendi Universal's Seagram drinks empire yesterday with the sale of its Malibu coconut rum brand to Allied Domecq for £560m.

In return its rival Allied, which beat off competition from Fortune Brands of the US and Pernod Ricard of France, has agreed to drop a Puerto Rican lawsuit that threatened to prevent Diageo from gaining control of Captain Morgan rum, the star in the Seagram portfolio.

The Malibu sale was the last piece of a disposals jigsaw that Diageo had to complete to gain US regulatory approval for its Seagram acquisition, which it made jointly with Pernod Ricard. The Federal Trade Commission in December gave Diageo six months to sell either Malibu or Captain Morgan to avoid creating a duopoly in the rum market with Bacardi, the market leader.

While the price fetched for the coconut rum brand lagged market expectations of about £650m, Diageo said Allied's bid offered the best value. If Diageo had sold Malibu to another bidder, it would have risked ending up with no major rum brand had Destilleria Serralles, the Puerto Rican distiller trying to win Captain Morgan for Allied, succeeded in its legal battle.

Allied, the world's second largest spirits group, also agreed to buy Mumm Cuvée Napa, a Californian sparkling wine, from Diageo for £27.5m. Allied, which already owns the Mumm champagne business, said it would fund the acquisitions with debt and £152m raised yesterday in a placing of 39 million shares at 390p.

Philip Bowman, Allied's chief executive, said: "Malibu gives us a highly sought after rum-based brand with a proven growth record. It has critical mass, an on-trade presence and will add momentum in a number of our key markets." It paid around 13 times the brand's earnings before interest, tax, depreciation and amortisation, which was ahead of the actual Seagram deal at 11 to 12 times.

Analysts said that ownership of the Captain Morgan brand was critical for Diageo's future growth. Paul Walsh, Diageo's chief executive, intends to use the brand to create further ready-to-drink cocktails, along the lines of its Smirnoff Ice and Archers Aqua products.

Malibu, a popular Essex Girl tipple in the 1980s, has grown by 10 per cent a year since 1995. It was Diageo's fastest-growing liquor brand last year, ahead of Smirnoff vodka and Johnnie Walker whisky, contributing £43.5m after marketing costs to Diageo's group profits. However, demand for Captain Morgan, a spicy dark rum, was twice that of Malibu.

Seagram's former parent Vivendi will pay Diageo £50m for settling the Captain Morgan legal row – a fraction of the $1.8bn to which it could have been liable if it had lost. Diageo's shares gained 6p yesterday, while Allied's slipped 11.75p.