Let The Drink Talk

[Richard P.]

JOHN BOWKER
DEPUTY CITY EDITOR
http://business.scotsman.com/

PERNOD Ricard has dealt a potentially killer blow in the battle for drinks giant Allied Domecq, as it lured industry leader Diageo to support its £7.4 billion swoop.

The French company revealed that it had sold Diageo its Irish whiskey brand, Bushmills, for £200 million, while also agreeing to hand over most of Allied's New Zealand wines portfolio, Montana, for £320m.

In return, Diageo has pledged not to talk to any other parties concerning the takeover of Allied - namely US rival Constellation Brands, which is mulling a counter-bid.

It leaves Constellation without the potentially decisive injection of cash that could have been generated from a Diageo tie-up.

News of the deal comes less than a month after revelations in The Scotsman that Diageo had prepared a £1bn war-chest in order to muscle in on the takeover. Pernod announced in April that it had agreed a 670p-a-share deal for UK-based Allied, but Constellation soon declared that it was interested in spoiling the deal.

James Dawson, a drinks analyst at Charles Stanley, said the Pernod manoeuvre was "hugely significant" for the battle as a whole, as it severely reduced the chances of a Constellation bid.

He added: "It precludes Diageo from talking to other parties, and it means Constellation will lack strength on the funding side."

The US firm has the support of Jack Daniels' owner Brown Forman and two private equity groups, but it may need 700p-a-share in order to win the battle.

Pernod and Diageo previously worked together on the acquisition of Seagrams in 2001, the deal which catapulted the Guinness-owner to the forefront of the market. Pernod played the No.2 role in that deal, leading industry followers to note that yesterday's announcement was effectively a reverse of that deal.

Bushmills will be Diageo's first entry into the Irish whiskey market, where it will compete with Jameson - still owned by Pernod. A source indicated that the new owner could inject greater investment, boosting the Irish industry as a whole.

Meanwhile, although Pernod had talked up the acquisition of Montana, a spokesman argued that it would retain three wines in the portfolio, and boost its coffers.

Constellation still has until 29 June to make its counter-bid. Allied shares closed up 1p at 699p.

WORRY SCOTCHED
PERNOD'S deal with Diageo provides greater certainty for Scotland's whisky industry, as the French firm has played down the likelihood of major job losses. It will add big-selling Ballantine's to its portfolio - giving it 21 per cent of the market - but its UK synergies are vastly reduced by the decision to hand Allied's UK sales and distribution network to partner Fortune Brands, who will also take Teachers and single malt Laphroaig.

[Richard P.]

By Ian Fraser, Financial Editor
http://www.sundayherald.com/

TWO of the whisky executives behind the Cardhu Pure Malt debacle 18 months ago are to leave their jobs at the world’s largest drinks company, Diageo.
Jonathan Driver, Diageo’s global brand director for malts, and Richard Watling, its director of Scotch whisky portfolio brands, are to leave their jobs. Iain Kennedy, brand manager on the international blend J&B, is also leaving his post.

Driver and Watling are seen as having failed to foresee the powerful industry backlash to Diageo’s decision to relaunch Cardhu as “Cardhu Pure Malt” during 2003. The debacle ended up being a major embarrassment for Diageo’s chairman Lord Blyth.

The rest of the Scotch whisky industry was united in its condemnation of Diageo’s decision to reinvent Cardhu single malt as a “pure malt” – or blend of malts.

This differs from blended whisky which is made by combining malts with distilled grain spirit.

London-based Diageo created its pure malt to overcome supply shortages at its Cardhu distillery and ensure it could match burgeoning demand for the 12-year-old brand in Spain.

Politicians also leapt into the fray, criticising the move as one that would undermine the authenticity of Scotch whisky and could cost Scottish jobs.

As the debacle raged in late 2003, Driver was given the task of defending Diageo’s strategy, even though to many rival distillers it seemed indefensible.

At that time, Driver said: “The implications of this move have been distorted and over-dramatised.

“If we are in a dynamic industry and category, then we are going to have to find new ideas about how we bring consumers into Scotch.”

Driver warned that if Diageo was prevented from reinventing Cardhu as it saw fit, Scotch whisky as a whole could lose out to other spirits. He said: “There’s an enormous dark rum market just waiting to explode” in Spain, which is Cardhu’s biggest market.

Driver last week confirmed that he and the other two executives were leaving their jobs. He told the Sunday Herald: “There are big changes under way [at Diageo] at the moment.” But he claimed all three executives were “in discussions about finding new jobs elsewhere in the group”.

Driver insisted that the three executives were not leaving the company. “That is not the case right now,” he said.

But a senior Scotch whisky source said: “It’s true. Jonathan is going. I think you could say that the Cardhu affair did not exactly help his career at Diageo.” The source suggested that Driver and Watling were, to some extent, being made scapegoats by Diageo.

Diageo is currently restructuring and simplifying its business after becoming a specialist premium drinks business. This follows the purchase of the bulk of Seagram’s drinks portfolio and the sales of food subsidiaries Pillsbury and Burger King.

Spokeswoman Isabelle Thomas said: “We’re looking at reducing costs where they need to be reduced and seizing opportunities elsewhere.”

Meanwhile, industry sources say Diageo is more likely to team up with the Constellation Brands-led consortium than with Pernod Ricard and Fortune Brands in a bid for Allied Domecq. Diageo is keen to get its hands on leading Allied Domecq brands, such as Maker’s Mark and Tia Maria.

In April, Diageo said it would issue a global bond of up to $900 million to restructure its debt. At the time the group said: “Diageo expects to continue to evaluate opportunities to make acquisitions that complement its existing premium drinks brands and create shareholder value.”

Last week, Diageo’s chief executive Paul Walsh suggested the group would be prepared to help either Pernod Ricard or Constellation Brands in their bids for Allied Domecq.

[Mad Dog]

Well I suppose with their sacking no-one can say it was a marketing ploy??!!

It got them more noteriety than free advertising but I would like to see the sale figures for Cardhu before and after the event.
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