PARIS (AFX) - Pernod Ricard SA is set to become the world's second-largest spirits group after announcing this morning a friendly 670 pence per share bid to acquire its UK rival Allied Domecq PLC.
The 10.7 bln eur deal comes just four years after Pernod purchased a portfolio of alcohol brands from Seagram's, and will transform the company into a spirits powerhouse within striking distance of industry leader Diageo.
"We're moving up in the global rankings, that's good, but it's not an end in itself. Above all, it's an opportunity to be a fabulous adversary to Diageo," CEO Patrick Ricard, the son of one of the group's founders, told French daily Le Monde today.
Investors cheered the deal by pushing up Pernod shares to all-time highs on confirmation of the bid, which had been widely expected given the consolidation trends within the industry.
By selling part of the Allied brands to US conglomerate Fortune Brands, with a total value of 4.1 bln eur, Pernod will avoid competition concerns that could hinder the deal, while at the same time limiting the debt needed to finance the operation.
And more importantly, Pernod will become the second largest player on the key North American market, and double its size in the US.
"This project turns out to be positive on the strategic level as much as on the financial level," said Vanessa Laurence, an analyst with Dexia Securities in Paris.
It's a beautiful growth story, they're going to have a massive foothold in this market," said one trader in Paris, who said the promise of generating 300 mln eur of cost synergies from the third year of operation was well ahead of expectations.
"And they have a great distribution channel, so the introduction of new products won't be a problem," bolstering investor confidence that the deal will boost Pernod's EPS significantly from the first year of operation, he added.
After the divestment of Canadian Club whiskey, Courvoisier cognac and other assets to Fortune, including Allied's QSR unit that owns Dunkin' Donuts and the Baskin Robbins ice cream chain, Pernod's annual sales will reach a pro forma 5.8 bln eur, compared with the 3.5 bln reported by the group for 2004.
Operating margins, even when including additional costs from the merger, will reach 25 pct after the acquisition, against Pernod's 21 pct margin in 2004.
The bid, which has the unanimous recommendation of Allied's board, is composed of 545 pence plus 0.0158 new Pernod shares for every Allied share.
Offering a 36 pct premium to Allied's Feb 2 closing price, and a 24.8 pct premium to the price at closing on April 4 -- the day before the approach was confirmed -- dealers said there is little chance of seeing the emergence of a counterbid for Allied Domecq.
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The 10.7 bln eur deal comes just four years after Pernod purchased a portfolio of alcohol brands from Seagram's, and will transform the company into a spirits powerhouse within striking distance of industry leader Diageo.
"We're moving up in the global rankings, that's good, but it's not an end in itself. Above all, it's an opportunity to be a fabulous adversary to Diageo," CEO Patrick Ricard, the son of one of the group's founders, told French daily Le Monde today.
Investors cheered the deal by pushing up Pernod shares to all-time highs on confirmation of the bid, which had been widely expected given the consolidation trends within the industry.
By selling part of the Allied brands to US conglomerate Fortune Brands, with a total value of 4.1 bln eur, Pernod will avoid competition concerns that could hinder the deal, while at the same time limiting the debt needed to finance the operation.
And more importantly, Pernod will become the second largest player on the key North American market, and double its size in the US.
"This project turns out to be positive on the strategic level as much as on the financial level," said Vanessa Laurence, an analyst with Dexia Securities in Paris.
It's a beautiful growth story, they're going to have a massive foothold in this market," said one trader in Paris, who said the promise of generating 300 mln eur of cost synergies from the third year of operation was well ahead of expectations.
"And they have a great distribution channel, so the introduction of new products won't be a problem," bolstering investor confidence that the deal will boost Pernod's EPS significantly from the first year of operation, he added.
After the divestment of Canadian Club whiskey, Courvoisier cognac and other assets to Fortune, including Allied's QSR unit that owns Dunkin' Donuts and the Baskin Robbins ice cream chain, Pernod's annual sales will reach a pro forma 5.8 bln eur, compared with the 3.5 bln reported by the group for 2004.
Operating margins, even when including additional costs from the merger, will reach 25 pct after the acquisition, against Pernod's 21 pct margin in 2004.
The bid, which has the unanimous recommendation of Allied's board, is composed of 545 pence plus 0.0158 new Pernod shares for every Allied share.
Offering a 36 pct premium to Allied's Feb 2 closing price, and a 24.8 pct premium to the price at closing on April 4 -- the day before the approach was confirmed -- dealers said there is little chance of seeing the emergence of a counterbid for Allied Domecq.
paris@afxnews.com
js/cml
COPYRIGHT
Copyright AFX News Limited 2005. All rights reserved.
The copying, republication or redistribution of AFX News content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.
AFX News and the AFX Financial News logo are registered trademarks of AFX News Limited
For more information and to contact AFX: www.afxnews.com and www.afxpress.com
© 2005 AFX News
