Outlook: Highland Distillers

WHAT BETTER day than the Glorious Twelfth for someone to take aim at the owner of Famous Grouse? The sharp rise in the share price of Highland Distillers on Thursday was duely followed by confirmation yesterday that the group had received an approach which may or may not lead to an offer.

Two decades ago, Hiram Walker, now part of Allied Domecq, took a pot shot at Highland, only to be seen off by the myriad of supply arrangements that it had with other distillers. Since these would have been automatically torn up had Hiram got its hands on the business, its bid was left high and dry, as they say in the spirits world.

Highland has got its defences in place again this time around. Some of those supply arrangements remain in place. But more importantly, ownership is tightly held by two big shareholders - the Edrington private family trust and France's Remy Cointreau, which also has an extensive distribution agreement with Highland.

So for any bid to succeed, it would have to be friendly. Diageo and Allied are probably ruled out because adding Britain's second best selling Scotch to their own brands would almost certainly be too much for the regulators to swallow.

As far as trade buyers go, that leaves Pernod Ricard, which has already raised pounds 3bn in the debt market and could buy Highland with the small change, Canada's Seagram and perhaps even the privately-owned Bacardi.

The dark horse, however, could turn out to be a management-led buyout. Robertson and Baxter, the unquoted distiller in which Highland has a large stake, could be the vehicle for such a bid.

If Highland is swallowed up it would leave only a handful of independent distillers in Scotland, led by Glenmorangie and William Grant.

But shareholders would probably not grouse at an offer valuing the business at pounds 500m. Highland has demonstrated the painful fact that, in this game, sales success does not always add up to profit. In the last five years the share price has underperformed the market by almost 70 per cent. Taking Highland private might be the most humane end for this game bird.

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