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The City

Published:  18 January, 2007

Farewell Allied Domecq.

The company will live on as a subsidiary of Pernod Ricard, but to all practical intents and purposes it is defunct. The world's second-largest wines and spirits group passed to the French giant on 26 July. It will now account for annual sales of 77 million cases of spirits and 18 million cases of wine.

Several consequential moves have taken place already. Pernod has appointed advisers to sell off Allied's quick-service restaurants (Baskin-Robbins, Dunkin' Donuts and Togo's), which are predicted to raise some $2 billion. At the same time, the process of selling some of the Allied drinks portfolio to Fortune Brands is under way. Fortune will pay $4.9 billion for lines such as Courvoisier Cognac, Canadian Club, Cockburn's Port and Laphroaig Scotch to add to Jim Beam and the De Kuyper liqueurs range, and, by so doing, propel itself from seventh to fourth place in the global spirits business.

As a result of the huge takeover, Pernod Ricard's debt rating has been downgraded, but it has restructured its finances by calling in OCEANE convertible bonds issued in the wake of its joint takeover, with Diageo, of Seagram. Allied's former shareholders seem content with Pernod Ricard's prospects. Some 64% of them chose to take extra Pernod shares rather than the partial cash option that was on offer.

Two days after the takeover was concluded, Pernod Ricard announced a further set of buoyant results. In the first half of 2005, sales rose by 8% over the same period in 2004, while organic growth was 9.4%. The growth rates of some focus brands were notable: Chivas Regal put on 19% and Havana Club 17%, while Jacob's Creek was up 12%.

It is now widely expected that Diageo will exercise its option to purchase from Pernod Ricard most of Allied's New Zealand Montana wine empire, following a no-compete deal that effectively guaranteed the French group's success in taking over Allied. At the same time, Constellation Brands, which walked away from making an offer for Allied, has said it has up to $2 billion to spend on acquisitions in the spirits sector, and observers believe it may have identified suitable targets.

Pernod Ricard may be willing to venture even further into the takeover market. Earlier this month, Patrick Ricard said the group has a bit of leeway to take advantage of the opportunities that arise'. While he will be busy overseeing the incorporation of Allied's brands into the Pernod portfolio, it is widely reckoned he would welcome the chance to bolt Taittinger onto Mumm and Perrier Jout to create a powerful Champagne portfolio. He will not overpay, however, especially as, some speculate, Taittinger may fetch €700 million and the eponymous family may still be in pole position.