Pernod swallows Allied Domecq

DRINKS giant Allied Domecq is to be swallowed up by Pernod Ricard of France in a £7.4bn takeover deal. Shareholders will receive 545p in cash and 0.0158 of a new Pernod Ricard share for every Allied Domecq share they already hold. They will also get the 6.5p a share dividend announced today with Allied's interim results.

Once the deal goes through, Pernod will sell some of Allied's brands to US-based Fortune Brands for £2.8bn in cash. These include Canadian Club, Courvoisier, Maker's Mark and Sauza spirits and its super-opremium California wines, including the Clos du Bois brand and various Allied distribution assets in Europe for US wines.

Pernod will keep the rest of the business, a veritable drinks cabinet of brands ranging from Ballantine's whisky, Beefeater gin, Kahlua, Malibu, Stolichnaya, Tia Maria, Montana, Mumm and Perrier Jouet and Campo Viejo, together with some other Allied business interests.

The two-way sale to the French and the Americans is essential to avoid the involvement of competition authorities who would otherwise step in and prevent the deal going through. Even so, it could take a year to get the transaction past competition watchdogs in Brussels and Washington.

Analysts believe the deal will transform the drinks industry, giving Pernod the power to move from being a strong regional player into a giant with global brands and a presence in all major world markets. The new products it takes on from Allied will help it compete head-to-head with Diageo, the current number one in the drinks industry.

Allied Domecq's Australian chief executive Philip Bowman, 52, said the business had changed substantially in the past six years since he joined the company. He is likely to leave with some £15.3m in golden parachute payments for shares, options and bonuses he is owed.

'Our interim results announced today demonstrate our eleventh successive half-year of growth. Competitive and economic conditions in the first half of 2005 have been tough but we delivered a robust performance. The offer from Pernod Ricard provides Allied shareholders with the ability to crystallise value and an opportunity to participate in the future success of many of our brands within the enlarged Pernod Ricard business.'

Allied Domecq's results showed pre-tax profits up 7% at £285m though turnover was flat at £1.7bn. Strong growth in North America compensated for more challenging conditions in Western Europe, with turnover in the spirits and wine business down by 6% net turnover fell 5%. Overheads were reduced by 6% but this failed to halt a decline in volumes. The UK was particularly poor, with volumes down by 8% and net turnover 6% adrift. Despite this, Courvoisier did well with volumes up 4%.

Allied Domecq blamed economic stagnation in France and Germany for a slowdown in consumer spending. Sales in France were also distorted by government-imposed price decreases from September.