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Brown-Forman: the next big deal?

Published:  27 January, 2014

Mergers and acquisitions are the name of the game at the moment in the spirits world and whiskey brands are taking centre stage.

Following Suntory Holdings Ltd announcement of the acquisition of Beam Inc for US$ 16 billion, Brown-Forman's shares jumped to a high of US$83.42 per share two days later. The shares jumped in price by 8.2% following the competition's merger announcement primarily due to investor speculation that other spirit acquisitions within the industry may be in the works.

The increase in popularity of Bourbon and the category for flavoured Bourbon in recent years makes Brown-Forman's iconic Jack Daniel's brand attractive to other congolomerates in the drinks trade.

Additionally, Diageo PLC's stock dipped 1% last week according to the Guardian, as a result of investor speculation that Diageo is on the hunt to acquire Jack Daniel's. Diageo had explored a bid for Beam in 2012, but a bid was never made due to anti-trust hurdles Diageo didn't want to face. 

Jack Daniel's

There are a limited number of big stake deals of this magnitude left in the drinks industry as the biggest four players, Diageo, Pernod-Ricard, Suntory (most recently) and Brown-Forman, dominate the market and the flexibility to make large purchases like this become more challenging.

Although mergers and acquisitions seem to be an opportunity for growth, it is also risky, as Diageo PLC recently found out.

Last week Diageo was arguing before the Supreme Court in India in an attempt to get an acquisition deal of United Spirits Ltd back on track. On December 20, 2013 the high court annulled and voided the deal on the basis that the transaction between Diageo and United Breweries, the owner of Untied Spirits, was undervalued. A group of United Spirits creditors, in attempt to recover money, challenged the deal after it was originally approved in July 2013.