Brown-Forman Corp, owner of the maker of Jack Daniel’s whiskey, is reportedly leaning towards a deal with French distiller Pernod Ricard SA over a competing offer from its closely held American rival Sazerac Co., Bloomberg reported, citing a person aware of the development.
With the potential merger, Brown-Forman could have a better route to market Jack Daniel’s in China and India – where demand for whiskey is rising, given Pernod’s wide distribution network, mentioned the report. It would also expand both companies’ global reach.
The deal being contemplated would be 80% stock and 20% cash, people familiar with the matter said.
News of the discussions comes amid the pressure which Brown-Forman, like other distillers, has been facing due to a swift drop-off in alcohol consumption, especially among younger adults.
The US spirits market is struggling, with off-premise sales averaging a stagnant 1% quarterly growth over the last three years, as per Bloomberg Intelligence. Amid this slump, Brown-Forman has been hit particularly hard, with its shares plummeting 60% over the past five years.
Why Brown-Forman Corp is in favour of Pernod?
Sources aware of the discussions also told Bloomberg that Brown-Forman Corp sees Pernod as the better fit as the combined company could be diversified across geographies and types of spirits. Additionally, a deal with Pernod would give the 150-year-old family-controlled distiller behind Jack Daniel’s a bigger stake in the business and more influence.
The potential tie-up between Brown-Forman– which has a market cap of about $13.4 billion, and Pernod, which has a market value of about $20 billion – could create a leader in American whiskey, strengthen Pernod’s position in tequila and expand both companies’ global reach.
Meanwhile, Sazerac plans to submit a $15 billion all-cash offer for Brown-Forman, New York Times had reported on 17 April.
With roots dating back to the 1630s, Sazerac—which makes Buffalo Trace bourbon and Southern Comfort liqueur—is heavily concentrated in the US market. Its whiskey-centric portfolio closely overlaps Brown-Forman’s offerings.
While the Brown family maintains control via two-thirds of the company’s voting rights, an all-cash bid from Sazerac may appeal to minority shareholders eager to exit the volatile spirits sector. However, a merger would consolidate over 30% of the US whiskey market, which analysts at Barclays Plc say would likely trigger an “extended review” from regulators that may not be warranted under a Pernod combination, reported Bloomberg.
Louisville a key region?
Brown-Forman and Pernod have considered maintaining Louisville, Kentucky, as a key region for the combined entity – as part of the ongoing discussions. However, there is no clarity on whether the city would be the headquarters or just a major hub.
With talks still underway, people aware of the matter have reportedly said there’s no guarantee it would result in the sale of Brown-Forman.
