LONDON, April 21 -- Pernod Ricard SA on Thursday launched a much-anticipated friendly takeover of its larger British rival Allied Domecq PLC, a $14 billion deal that would make the combined entity the second-largest liquor company and a more serious challenger to world leader Diageo PLC.
Pernod, which already has Martell cognac and Jacob's Creek wine in its cabinet, said the deal would fill a gap in its liqueurs lineup, provide a stronger foothold in the lucrative U.S. market and boost earnings per share in the first year.
Pernod Chairman Patrick Ricard speaks in Paris about the buyout plan.
Allied brands that would be taken up by Pernod include Beefeater gin, Malibu rum, Tia Maria and Kahlua liqueurs, Stolichnaya vodka and Ballantine's Scotch. It would also acquire premium wines such as Mumm, Montana and Perrier Jouet.
The deal would make the combined company "the true No. 2 in the world, and hopefully a true competitor to Diageo," said Pierre Pringuet, Pernod Ricard's co-managing director.
Allied and Pernod are the current No. 2 and No. 3 in the global drinks business, and analysts agreed that the blended company would have the muscle to challenge British-based leader Diageo.
Shares in Allied Domecq rose 3.4 percent to close at the equivalent of $12.70 on the London Stock Exchange. Pernod Ricard shares jumped 6.8 percent to the equivalent of $162.90 on the Euronext exchange in Paris.
Pernod is offering the equivalent of $12.90 per Allied Domecq share, representing a premium of about 36 percent on Allied's closing price on Feb. 3, the last business day before speculation of a deal arose. Pernod proposed to pay $10.5 million in cash and issue 17.5 million new shares to complete the funding.
To appease regulators and help with finances, Pernod plans a three-way deal in which it will sell some of the brands it acquires from Allied to Fortune Brands Inc., a U.S.-based liquor, sports equipment and household products company, for about $5.4 billion. Fortune, which already distributes Jim Beam whiskey and Absolut vodka, is also taking on Allied's distribution networks in Britain, Germany and Spain.
Brands being purchased by Fortune include Canadian Club whiskey, Courvoisier cognac, Maker's Mark bourbon and Sauza tequila, and the super-premium Californian wines. Fortune will also acquire Pernod's Larios brand. Handing off Courvoisier will avoid giving Pernod, with its Martell brand, more than half of the cognac market in Britain.
Fortune said the additions will double its spirits and wine sales, putting it among the top four spirits companies in the world.
"We see the purchase of these exceptional, complementary brands as an excellent high-return growth opportunity that will fill gaps in our portfolio and take our very profitable spirits and wine business to the next level," said Fortune Brands Chairman Norman H. Wesley.
Questions remain over the future of Stolichnaya, the world's best-selling vodka, following a statement from the brand's Russian owner, SPI Spirits Group, this week that it will reconsider its deal with Allied Domecq if a takeover goes ahead. Bowman declined to comment on the distribution rights for Stolichnaya amid reports that SPI reportedly has the power to pick another distributor if its partner is taken over -- raising doubts about Stolichnaya's distribution in the lucrative U.S. market.
Bowman said the overall acquisition, if approved by shareholders of both companies, is expected to become effective at the end of July or early August.