Pernod sights set on Allied Domecq

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The Independent Online

Allied Domecq, the drinks giant behind Beefeater gin and Malibu rum, admitted yesterday it has received a much-anticipated takeover approach from two rivals, Pernod Ricard and Fortune Brands.

Allied Domecq, the drinks giant behind Beefeater gin and Malibu rum, admitted yesterday it has received a much-anticipated takeover approach from two rivals, Pernod Ricard and Fortune Brands.

Mirroring Pernod's joint bid with Diageo for the Seagrams drinks business in 2001, Pernod and Fortune, the US conglomerate behind Jim Beam bourbon, are likely to carve up Allied's cocktail of brands, which also include Ballantine's scotch whisky and Tia Maria.

Shares in Allied shot up 18 per cent on news of the talks, closing at 633p, after two months of speculation that the French business Pernod was seeking a bidding partner to help fund a takeover of its larger rival. A statement from Allied said the talks regarding a potential offer from Pernod and Fortune were "at an early stage and there could be no certainty that an offer will ultimately be forthcoming".

Analysts were predicting yesterday that Pernod would not offer much more than 650p for Allied, valuing it at about £7.2bn. Philip Bowman, the chief executive of Allied, is also thought unlikely to open the books unless a substantial part of the bid is made in cash.

Financing of the offer will be crucial to the future of the talks. Although it has paid down debt since the Seagrams acquisition, Pernod still has debts of about €1.8bn (£1.2bn) and French shares would be unappealing to most of Allied's shareholders. Fortune, which also makes bathroom fittings and golf balls, has considerably more financial headroom to raise debt to fund the bid.

Nigel Popham, an analyst at Teather & Greenwood, said: "It really depends on how much money Pernod can come up with through its bid partner and how they decide to divide the brands. But I would be surprised if Pernod offered much higher than current share price levels. There has already been a lot of bid hopes priced into the shares and Allied has a pretty mixed bag of brands in the first place."

Pernod has had to seek a partner with which to bid because it lacks the financial firepower to swallow Allied alone. A carve up of Allied's brands would also allay competition issues, which a combined Pernod and Allied would face with some brands in certain geographies.

Pernod is thought likely to want Allied's wine business, which would complement its Jacob's Creek brands, and Allied's white spirits brands, namely Stolichnaya vodka. Fortune has been keen to expand into Europe, and is likely to take on Allied's Courvoisier brand. Pernod already owns Allied's chief rival in this sector, Martell, and would undoubtedly face competition issues if it were to take ownership of it.

Analysts at Barclays Capital said: "A bid from Pernod Ricard makes sense. A combined group would likely have a similar market share to Diageo, the global market leader, with similar portfolio and geographic strengths. The combination would overcome Pernod Ricard's weakness in the US, the world's largest spirits and wines market, and would strengthen Allied Domecq's position in the Far East, which is largely based on the Korean economy. Allied Domecq would also fill some of Pernod Ricard's portfolio gaps, particularly in vodka."

Although no other potentially interested parties have emerged so far, industry commentators believe a number of other drinks companies will want to take part in the latest round of consolidation in the sector. Bacardi, the family-controlled rum maker, is considered a likely contender for some of Allied's brands. Diageo refused to comment on the news yesterday, but Paul Walsh, its chief executive, has said in the past that he is interested in buying brands that become available through the fallout of other takeover deals.

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