$14.2-Billion Deal Splits Up Allied Domecq

Spirits giants Pernod Ricard and Fortune Brands Inc. bellied up to the bar Thursday and walked away with a $14.2-billion tab for such beverage brands as Beefeater gin, Stolichnaya vodka and Clos du Bois wine.

In a three-way deal, Paris-based Pernod will pay that amount in cash and stock for British drinks company Allied Domecq and then sell several of Allied’s businesses for $5.3 billion to Fortune, a Lincolnshire, Ill.-based conglomerate.

The transaction will make Fortune a major player in California’s wine industry and highlights the consolidation underway in both wine and spirits.

“The name of the game today is to broaden your product line. The small don’t make it,” said Marvin Roffman, president of Philadelphia-based Roffman Miller Associates, which manages $300 million including 40,000 Fortune shares.

The deal is going to make Fortune much bigger, doubling the size of its wine and spirits business to $2.5 billion in annual sales with the acquisition of such labels as Canadian Club whiskey, Courvoisier cognac, Maker’s Mark bourbon and Sauza tequila. Altogether, the conglomerate sells about $7 billion of home goods, office products, sporting equipment and wine and spirits annually.

The owner of Geyser Peak and Canyon Road wines in Sonoma County and the Wild Horse winery in Templeton, Fortune has been a small California wine producer in an industry that is increasingly controlled by such giants as E&J; Gallo Winery, Constellation Brands Inc. and the Wine Group.

With this deal Fortune will acquire important high-volume wine brands such as Clos du Bois, Buena Vista and Callaway and more than quadruple its California production to 2.7 million cases.

“This transforms Fortune into a significant player in the premium wine market,” said Jon Fredrikson, head of Gomberg Fredrikson & Associates, a Woodside, Calif., wine industry consulting firm.

Though Fortune trolled California vineyards for acquisitions in recent years, it stood on the sidelines while Robert Mondavi Corp. was sold to Constellation last year for $1 billion, and Chalone Wine Group Ltd. was purchased by London-based spirits company Diageo for $195 million in December.

The Allied wine portfolio, however, proved especially attractive to Fortune’s Peak Wines International unit in Healdsburg. Combined with Clos du Bois, the company will become the largest player in Sonoma County, said Stephen Brauer, president of Peak Wines, giving the company synergies in grape sourcing and production. The Clos du Bois brand is doing particularly well, growing by 15% for the six months ended Feb. 28, according to Allied Domecq.

Brauer said Fortune was moving at a time when “wine is in,” especially for the $10-and-above price range that is the focus of both the Peak Wine properties and the Allied portfolio.

Indeed, bottles priced over $11 are the fastest growing wine price segment, according to ACNielsen, the Schaumburg, Ill.-market research firm. Overall, sales of wine in U.S. grocery stores grew 7% by dollar volume and 3.2% by case volume for the 52 weeks ended March 12, according to ACNielsen.

“The outlook is good,” said Fredrikson. “That’s why there is a lot of money changing hands.”

Both wine and spirits are benefiting from “a structural change” in drinking habits, said Tom Pirko, president of Santa Barbara-based consulting firm Bevmark. “Young consumers are moving away from beer and are going to wine and spirits,” Pirko said.

Beer sales dipped to 53% of the domestic beverage alcohol market last year from 56% in 1999, according to the Distilled Spirits Council, an industry trade group. At the same time, spirits’ share of the market has risen to 31% from 28%.

Consumers, Pirko said, are looking for more complex and interesting flavors in an age when “all the light beers are virtually tasteless.”

But the wine and spirits consolidation also is driven by what Pirko calls “the Diageo effect.”

With more than $15 billion in annual sales, Diageo has become the dominant global player in the wine and spirits business, and rivals are scrambling to gain enough heft to be effective competitors.

The Allied purchase will give Pernod, which owns Chivas Regal among other spirits brands, a range of drinks including Beefeater, Ballantine’s Scotch whiskey, Kahlua coffee liqueur, Stolichnaya and Mumm champagne. It will own 20 of the top 100 global spirits brands and have international reach from the bars of Los Angeles to the tavernas of Greece.

The transaction also includes the Dunkin’ Donuts, Togo’s and Baskin-Robbins eateries, which Pernod is expected to sell off.

The deal will 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-director general. Pernod, which had revenue of $4.4 billion in 2004, did not provide an estimate of what its total sales would be when the merger is completed later this year.

*

Associated Press was used in compiling this report.

*

(BEGIN TEXT OF INFOBOX)

Well-known brands

A breakdown of where some of the famous brands will end up after Pernod Ricard’s planned takeover of Allied Domecq. Pernod Ricard will sell some of the brands it acquires in the deal to U.S.-based Fortune Brands Inc.

Allied Domecq brands to be retained by Pernod Ricard:

* Ballantine’s Scotch whiskey

* Beefeater gin

* Kahlua coffee liqueur

* Malibu rum

* Stolichnaya vodka

* Tia Maria coffee liqueur

* Mumm champagne

* Perrier Jouet champagne

Allied Domecq brands that will be sold to Fortune:

* Buena Vista wine

* Canadian Club whiskey

* Clos du Bois wine

* Courvoisier cognac

* Laphroaig single-malt

* Maker’s Mark bourbon

* Sauza tequila

Brands that will continue to be held by Pernod Ricard:

* Jameson Irish whiskey

* Bushmills Irish whiskey

* Chivas Regal Scotch whiskey

* Seagram’s gin

* Wild Turkey bourbon

* Havana Club rum

* Martell cognac

* Jacob’s Creek wines

Source: Associated Press

Los Angeles Times