IWSR has added its analysis to the speculation that Pernod Ricard and Brown-Forman could be the drinks industry’s last “mega merger”.
The Financial Times noted a week ago that “a potential combination of Pernod Ricard and US distiller Brown-Forman looks like the sector’s only remaining mega merger”. Since then discussion on the topic has been running hot.
According to the IWSR: “A combined Pernod Ricard and Brown-Forman would rival Diageo’s supremacy in the global spirits market. Pernod Ricard is already a strong global number two behind Diageo in terms of value, and a merger with Brown-Forman would cement that position.”
It added: “Brown-Forman’s whiskey portfolio also gives it a dominant position in many international markets, including in the UK (70% category share by volume) and France (85%).
“What is more, Pernod’s distribution network could help Brown-Forman to conquer new markets, such as India, where it currently has only a small presence. Pernod’s strong position in Indian whisky could provide Jack Daniel’s with a launchpad in what remains a difficult market to navigate.”
IWSR said a merger would also be advantageous in the tequila sector, moving the companies into fourth rank in the crucial US market.
It concluded: “[A merger] could give the current Pernod Ricard portfolio increased access to the US market for the Cognac, wine and Scotch whisky categories. Conversely, a merger could strengthen Brown-Forman’s current position in the gin, vodka and Scotch whisky categories as well. The potential synergies are clear.”
Pernod Ricard itself is the result of a merger. It was created in 1975 from two French firms – Pernod and Ricard. Brown-Forman got its name in 1890 – George Garvin Brown came up with the innovation of selling whisky in sealed glass bottles to assure its quality in 1870, an innovative approach at a time when whisky was commonly sold by the barrel. He entered into a partnership with George Forman, his accountant and friend, and Brown-Forman was created.
Over the years there have been numerous major mergers and acquisitions within the drinks industry. But the last “mega merger” was in 2013 when Suntory and Beam joined forces.
According to Drink Business a merger between Pernod Ricard and Brown-Forman “would not be totally impossible. But it would be complicated, costly, and ambitiously brave.”
However, it added: “Alexandre Ricard, the French group’s chairman and chief executive, has always said his long-term ambition is to be the global leader.
“A transatlantic merger would put him on almost equal footing with Diageo in terms of volumes and would see him running neck and neck with it in the US in terms of spirits market share and profitability.”
A major stumbling block would be that both companies remain family controlled and no deal could be done without all family members and their supporters agreeing to it.
Drinks Business said that if Pernod Ricard were to make an offer to take over Brown-Forman, it would need to be around the £31 billion mark, while if Brown-Forman was making the approach, the price would be somewhere around £48 billion. Either way, it would be “enormous”.
“So assume an agreed merger between the controlling families rather than a takeover bid,” it noted.
Watch this space …