March 27 (Reuters) – A prospective tie-up between France’s Pernod Ricard and Jack Daniel’s maker Brown-Forman would test whether the powerful families behind the two drinks groups can unite to scale up in a slowing global spirits market.
Shares in Pernod Ricard, the world’s No.2 spirits maker, rose 3% on Friday after slumping to a 2009 low the day before when it confirmed merger talks with U.S. rival Brown-Forman.
The companies gave no financial details and said there was no certainty a transaction would result.
A DIFFICULT TARGET
Industry analysts said a combination would make strategic sense in a sector hit by weakening demand and trade tensions, and would create a stronger challenger to global leader Diageo.
Merging Brown-Forman’s American whiskey and tequila with Pernod’s global distribution and broader portfolio – currently light in both categories – could deliver annual cost savings of as much as $450 million, according to Jefferies. It would also give the combined group more clout in the critical U.S. market.
But some analysts warned a deal could be hard to achieve given the significant control held by the Ricard and Brown families, Brown-Forman’s historic resistance to major transactions, and the likelihood that Pernod would have to pay up to buy its smaller rival.
“As a family controlled business, touting the competitive advantages of being such, Brown-Forman has been a difficult/unlikely target,” Roth analyst Bill Kirk said in a note, adding that a significant premium would likely be required.
The Brown family holds more than 67.5% of Brown‑Forman’s Class A voting shares, according to Barclays. Jefferies put the Ricard family’s voting interest in Pernod at 21%. Reuters was not able to immediately confirm these figures.
J.P. Morgan analysts said it was unclear whether Pernod could realistically pursue such a large deal given its already stretched balance sheet, though they saw strategic merit in cost synergies and wider use of each company’s distribution networks.
Still, analysts said, a deal would not automatically fix the sector’s most pressing issue: top-line growth.
As of Thursday’s close, Brown-Forman had a market capitalisation of almost $12 billion, while Pernod’s stood at around 15 billion euros ($17 billion).
(Reporting by Jakob Van Calster in Gdansk, Emma Rumney in London and Juveria Tabassum in Bengaluru. Editing by Mark Potter and Lisa Jucca)
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