The path has been cleared for Pernod Ricard to proceed with its £7.6 billion ($13.9 billion) takeover of Allied Domecq after a rival bidding consortium, led by Constellation Brands, dropped out of the running for the U.K. drinks group.
The Constellation team, which included Brown Forman and the private equity groups Lion Capital and Blackstone Group, said it could not make an offer for the group add up. Richard Sands, the chief executive of the U.S. wine group, said, “Constellation does not believe that the economics justify an offer. Simply put, careful consideration and evaluation of the details following due diligence did not identify sufficient value for submitting an offer.”
Apparently, the consortium began to unravel after it failed to get sufficient funding for an all-cash offer that would have trumped Pernod's cash and shares bid. The consortium was banking on the help of a rival drinks giant, Diageo, to assist with funding. However, after Diageo struck a deal to support the Pernod bid earlier this month, Constellation was forced to put forward a cash and shares bid in a complex deal that would have seen Allied's wine business de-merged and re-floated on the stock market.
Sources close to the situation said the team and the company could not agree on how much the wine business was worth, with Constellation valuing the business much higher than Allied.
Allied's £387 million ($706 million) pension deficit is also thought to have been a problem to Constellation. The company would have had to satisfy the scheme's trustees that it would be able to fully secure the obligations of the pension fund.
The Takeover Panel had given Constellation, the world's biggest wine group and owner of Mondavi wines, until June 29th to make a counter-bid. Analysts were expecting Constellation to launch a rival offer, leading to a protracted bidding war that would see Pernod raise the price it was prepared to pay.
The withdrawal of Constellation means Pernod's cash and shares offer, which has been recommended by the Allied board, looks set to go unchallenged. A combined Allied and Pernod would create the world's second-largest drinks group behind the market giant Diageo.
“There is no longer any uncertainty,” a spokesman for Pernod said. “This is good news for the employees, suppliers and shareholders of Allied Domecq.”
The groups agreed to divide Allied's brands, with Pernod taking Ballantine's whisky, Beefeater gin and most of Allied's wines and Fortune picking up Sauza tequila and Kahlua liqueur.
The Pernod bid received a boost when Diageo, which considered joining the Constellation bid team, threw its weight behind the Pernod camp this month. It struck a deal to buy Allied's Montana wines and Pernod's Bushmills whiskey if the French group's bid was successful.
Pernod, home to Chivas Regal whisky and Martell cognac, and its U.S. bidding partner, Fortune Brands, require regulatory clearance for the Allied takeover to go ahead. They also have to get the green light from Allied's investors who will vote on the deal next month.
The EU is due to rule on the deal on June 24th, while Fortune requires regulatory clearance from the Federal Trade Commission in the United States.