Pernod Ricard and Brown-Forman explore merger
Why does this matter?
Major M&A activity between two global spirits giants signals industry consolidation pressures and strategic shifts that could reshape competitive dynamics and tech investment priorities for BevTech startups serving the spirits sector.
Highlights
Pernod Ricard and Brown-Forman have confirmed early-stage talks about a potential business combination that could create one of the world’s largest spirits groups. The proposed merger would unite major global brands and two founding family dynasties at the heart of the drinks industry. Pernod Ricard and Brown-Forman have confirmed that they are discussing a “potential business combination” which they say would be “akin to a merger of equals”. The Kentucky company said the possible combination would create “a global spirits leader with enhanced scale, a powerful brand portfolio and a balanced geographic footprint, all anchored by two iconic families”. The talks are said to be at an early stage and both sides stress there is no guarantee that they will end successfully. Potential creation of a transatlantic spirits giant Any deal would create a transatlantic spirits giant with substantial savings for both sides in terms of distribution (especially in the US) and central costs. It would combine the world’s largest producer of American whiskey with the second-largest global spirits group. One notable hurdle is that both companies are effectively controlled by families of founders, the Ricards and the Browns, and both previously have jealously guarded their independence through family trusts. At today’s share prices, the two companies would have a market value of $30 billion compared with Diageo’s $41 billion. Industry downturn pressures spirits groups Both companies have suffered a multi-year sales slump and seen their share prices hammered since the end of the Covid pandemic, as the industry combats consumers worldwide trading down from premium brands in the face of pressure on disposable income. In addition, they have both faced geopolitical tensions such as China’s effective outlawing of Cognac and Canada’s boycott of American spirits, including the iconic Jack Daniel's Bourbon. Together, the two own a powerhouse of international brands with only minimal overlap to cause anxieties to competition authorities. A joint portfolio would include Jack Daniel's and Woodford Reserve with Chivas Regal and the Glenlivet scotches, Absolut vodka, and Jameson Irish whiskey. Strategic restructuring already underway Both companies have already made significant moves to combat the present downturn in their fortunes. Last year, Pernod Ricard sold its still wine interest, including Jacob’s Creek, Brancott Estate and Campo Viejo to Vinarchy for a rumoured €500m. Brown-Forman sold its cooperages and both groups warned staff of possible restructuring. A key attraction is that both companies have made significant strides into the ready-to-drink (RTD) sector, with both Jack Daniel's and Absolut teaming with Coca-Cola. Two historic family businesses Brown-Forman was founded by George Garvin Brown in 1870 and has always been chaired by one of his descendants. Pernod Ricard was created through a merger of the two pastis groups in 1975 under Paul Ricard, who was succeeded by his son Patrick. Today, it is headed by Alexandre Ricard, the founder’s grandson. Initial shareholder reaction to news of the discussion was more positive in America than in Europe. Late yesterday, Brown-Forman’s shares rose by almost 10% on Wall Street, but Pernod Ricard’s shed 6% in Paris. Today, the French company’s shares have risen by about 3%. The news of the talks to form a potential rival giant will add an extra complication to new CEO Sir Dave Lewis’s thoughts on how to restructure and rejuvenate Diageo. He is due to unveil his plans to shareholders in May.
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