Pernod Ricard and Brown-Forman call off merger talks
Pernod Ricard and Brown-Forman have ended discussions over a proposed merger of equals after failing to agree on key terms. The decision leaves both spirits groups reassessing their strategies as competition intensifies across the global market.
A union of the French group with the biggest producer of American whiskey, including the iconic Jack Daniel’s brand, would have created a £25 billion rival to Diageo, the world’s biggest premium spirits company.
After news of the talks leaked in March, both companies confirmed that they were in discussions.
Decision described as mutual
Reuters says Pernod Ricard disclosed that the decision to cease negotiations was “mutual” and in the best interests of both sets of shareholders.
It reflected a “combination of elements” relating to debt structure and economics, and no single issue, the spokesperson said.
The news disappointed shareholders with Brown-Forman falling by about 5%.
Sazerac interest adds complexity
During the talks, American spirits group Sazerac, which owns brands including Corazon tequila and Svedka vodka, emerged as a new bidder this month for Brown-Forman.
The news of the breakdown highlights both companies’ desire to strengthen their global positions in the spirits market by widening their portfolios and cutting costs.
Companies reaffirm strategic focus
Pernod Ricard says it “remains fully focused and confident in its strategy and operating model, supported by strong and committed teams across the Group to deliver sustainable long-term value for all stakeholders.”
Brown-Forman said it intends to focus on “strategic and operational priorities,” including “unlocking future growth by expanding our geographic footprint.”
Partner Content
Uncertainty over next steps
The big question for both companies is “what happens next?”
While the merger talks were ongoing, it was widely reported that Sazerac was willing to pay $15 billion ($32 per share) for Brown Forman. No formal statement about a bid was made, but shareholders will now be wondering whether the $32 per share offer will materialise.
Insiders said that the Brown family, who have run Brown-Forman for five generations, preferred a cash and shares deal with the French as it would give them remaining influence over the enlarged group.
Key sticking points in negotiations
While there was little portfolio overlap, seemingly, however, terms could not be reached over valuations, share structure and the eventual domicile of the new company, Paris or Kentucky.
New Orleans-based Sazerac is wholly owned by the Goldring family, so an eventual takeover offer would likely require an all-cash bid and higher leverage, effectively forcing the Brown family to relinquish control.
Alternative strategies under consideration
The alternative, hinted at in Brown-Forman’s statement, is to go on the takeover trail itself or to seek stronger partnerships to reduce costs through distribution agreements and product combination. It already has links with Coca-Cola through the Jack and Coke RTD.
After a series of weak results, however, a priority is to strengthen the balance sheet.
Wider industry implications
Pernod Ricard has also been bolstering its finances and is reputedly contemplating an initial public offering of shares in its successful Indian subsidiary following last year’s successful sale of its antipodean and Spanish wine interests.
Meanwhile, observers continue to expect a reshaping of the global spirits sector and await next week’s unveiling of his plans by Diageo’s new chief executive, Sir Dave Lewis.
Related news
Brown-Forman warns of flat year despite sales beat
