Stolichnaya threatens to drop Allied if Pernod deal goes ahead

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The Independent Online

Allied Domecq may lose rights to sell one of the world's biggest spirits brands if it succumbs to a takeover by Pernod Ricard and Fortune.

Allied Domecq may lose rights to sell one of the world's biggest spirits brands if it succumbs to a takeover by Pernod Ricard and Fortune.

SPI Group, the owner of the Stolichnaya vodka brand that Allied sells and distributes around the globe outside Russia, has said it may pull out of the arrangement if there is a change of control at the company.

A statement from SPI yesterday said it had appointed HSBC to help it "review its options concerning the future distribution of its brands".

The news that Allied, headed by its chief executive Philip Bowman, may be dropped by SPI came as Pernod geared up to launch its bid for Allied. An offer from Pernod is expected tomorrow, coinciding with Allied's interim results.

Pernod, which is working in conjunction with the US conglomerate Fortune Brands, is set to table a bid of more than £7bn, although investors will be looking to see how much of the offer is in cash. Pernod will have to raise some of the funds for the deal through shares and Allied shareholders in the UK are unlikely to be satisfied with large amounts of French paper.

It is understood that SPI is concerned that a tie-up between Allied and Pernod, which would create the second largest drinks company behind Diageo, would limit competition in the drinks sector. It is concerned that too much power would be concentrated in one company, which may threaten its existing distribution and marketing arrangements.

Stolichnaya is considered one of Allied's most valuable attractions to Pernod, as it does not have its own vodka brand. A survey by the research company Impact Databank ranked Stolichnaya as the third most valuable spirits brand in the world. It comes behind Diageo's Smirnoff and Bacardi in value terms, selling more than $2bn (£1bn) worldwide. Analysts at Lehman Brothers estimate that Stolichnaya is worth about £300m to Allied, or about 25p per share.

Allied, however, owns the Stolichnaya trademark in the US, having bought it in a separate deal with PepsiCo four years ago, which gives it greater ownership of its revenues. In the past four years Allied has nearly doubled volumes to about 2 million cases. Sales to the rest of the world, excluding Russia and the US, are only about 700,000 cases a year.

Ian Shackleton, of Lehman Brothers, said: "The US is by far Stolichnaya's biggest market, so because Allied owns the trademark there, its revenues are somewhat protected even if the distribution deal collapses.

"But Allied does have a contract for sales in Europe, Latin America, Asia and Africa, which are growth markets for the brand. If it were to lose the contract, it would miss out on potential for growth on an international scale."

The vodka market has been particularly successful in recent years, especially in the US, thanks to the popularity of television shows such as Sex in the City in which vodka cocktails were glamorised.

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