US winemaker seeks partners for Allied break-up bid

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The Independent Online

Constellation Brands, the world's largest winemaker, is preparing a bid to rival Pernod Ricard's £7.4bn offer for Allied Domecq that would unite such famous labels as Robert Mondavi and Hardys with Clos du Bois and Mumm Champagne.

Constellation Brands, the world's largest winemaker, is preparing a bid to rival Pernod Ricard's £7.4bn offer for Allied Domecq that would unite such famous labels as Robert Mondavi and Hardys with Clos du Bois and Mumm Champagne.

Constellation plans to lead a break-up of Allied, keeping most of the UK company's wine assets but selling off large parts of its spirits business to international drinks groups.

The US group has appointed NM Rothschild and Merrill Lynch to advise it on a possible bid for Allied and their work has become more intense since details of the Pernod offer were published on Thursday.

Constellation's preparations are at an early stage but the Fairport, New York-based drinks group is serious about trying to mount an offer because Allied is seen by the company as a rare opportunity to buy a large, international portfolio of well-established wine labels.

Allied owns wine businesses in Spain, New Zealand - including the Montana label - and California where, as well as Clos du Bois it owns the highly rated Gary Farrell Winery.

Constellation, which also owns the Banrock Station and Stowells labels, is seeking partnerships with other drinks groups interested in buying Allied's spirits brands. The most obvious candidate to partner with Constellation is Brown Forman, the maker of Jack Daniel's bourbon. Another possible candidate is Bacardi.

Allied has tried to merge with Bacardi but has been frustrated by the complex family shareholding structure that controls the group, and has so far failed to persuade Bacardi to co-operate in a deal.

Diageo, the world's biggest spirits group, could also buy individual brands but faces tough regulatory hurdles if it wanted to act as a principal in any concert party bidding for Allied.

The Allied Domecq board has made it clear to Pernod Ricard that "higher or preferable" offers must be considered, and has deliberately not signed an exclusivity deal with the French company to ensure an auction of Allied's assets can proceed if rivals can finance an offer.

The Allied board's use of the term "preferable" relates to the amount of any offer paid for in shares. Pernod's existing 670p-a-share bid is 80 per cent cash and 20 per cent in Pernod shares.

A bid from Constellation that reduces the amount of shares in the offer could be seen as preferable to Pernod's cash and shares proposals. Allied Domecq shareholders may also be more interested in holding Constellation Brands' shares, which have nearly doubled in 12 months, rather than shares in Pernod, a company heavily influenced by the Ricard family and its related interests, which Allied believes represent 40 per cent of the company's votes.

An all-cash bid is also likely to be seen as preferable to the Pernod offer, but Constellation is smaller than the French group so financing the deal could be difficult. Pernod Ricard is taking on €9bn (£6bn) of debt to finance its offer.

Allied Domecq owns a quick service restaurant division worth up to £1bn which can be sold to help finance a deal. However, Allied is a highly cash-generative business and investment bankers are confident that debt can be repaid without undermining investment in its brands.

Pernod is mounting its bid jointly with Fortune Brands of the US.

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