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Diageo mulls spirits bid
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August 8, 2000: 6:16 p.m. ET
Firm joins Bacardi to seek Seagram's liquor unit, hoping to cut off rival bid
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NEW YORK (CNNfn) - British company Diageo PLC and Bacardi are preparing a bid to acquire Seagram's spirits business and should present an offering memorandum within the month, a source familiar with the situation told CNNfn.com Tuesday.
Whether Seagram -- producer of such popular brands as Crown Royal Canadian whiskey, Captain Morgan rum and Absolut vodka -- will consider the offer is "premature," the source said.
The unit, put on the selling block in June, could carry a price tag of anywhere from $7.4 billion to $7.7 billion, analysts said. A bid from Diageo (DEO: Research, Estimates) is also a step to keeping the Seagram's unit from falling into a rival's hand, including Allied Domecq PLC, Britain's No. 2 spirits distiller, which is widely viewed as a top bidder for the unit.
 The action also comes at a time when the London-based Diageo is selling its Pillsbury unit and plans to float shares in its Burger King division, giving it the financial firepower to make a competitive Seagram bid.
Diageo was unavailable for comment, while Seagram declined to comment.
Bacardi released a statement saying, "Bacardi has always been very interested in following opportunities within our industry; however, we have nothing to report and we decline to make comment based on rumors."
Seagram was founded as a liquor distribution company more than 80 years ago, but the company decided to sell its liquor business -- the world's third largest -- shortly after agreeing to merge with France's Vivendi in June in a $34 billion deal.
On July 17, the London-based Diageo agreed to sell its Pillsbury unit for $10.5 billion in stock and debt in exchange for a 33 percent stake in General Mills worth $5.4 billion. Diageo also plans to offer shares in fast food chain Burger King on the New York Stock Exchange, possibly as soon as next year.
Talks between Diageo and Bacardi are at an early stage, Reuters reported Tuesday, but the pace will pick up later this month ahead of Morgan Stanley Dean Witter's publication of a book with financial facts on the Seagram drink unit.
Lining up for a drink
Companies in the spirits industry -- including the Bronfman family -- are all considering making an offer for the Seagram's unit, analysts said. Other potential bidders include the France company Pernod-Ricard and the Louisville, Ky.-based Brown-Forman Corp.
"Every major participant in this industry is taking a strong look at Seagram," said Kurt Billick, of UBS Warburg.
Sale of the spirits unit will help Seagram pay down debt, analysts said.
"Now that they are part of a bigger entity, it's not a strategic fit anymore," said Michael Florin, of Gerard Klauer Mattison & Co. "They don't need the cash anymore to grow the music business."
Allied has long been considered a frontrunner in the bid for the Seagram spirit group, but has yet to make a formal offer, analysts said.
 Montreal-based Seagram (VO: Research, Estimates), whose brands include Chivas Rigal and Martell Cognac, is the world's third largest spirits group. The company also produces coolers and beers, as well as wines, tequila cognac, vodka, gin, rum and whisky. The privately owned, Hamilton, Bermuda-based Bacardi is the world's largest producer of Barcardi rum and sells over 20 million cases a year.
The deal will give Diageo and Bacardi access to Seagram's 82 brands. "Seagram has enormous distribution capability," said analyst Chris Dixon, of PaineWebber.
Seagram also successfully launched its Captain Morgan Parrot Bay run this year, Dixon added.
Bids on the unit could start at $7.4 billion, Dixon said, while Warburg's Billick values the unit at $7.7 billion as a stand-alone business.
On Tuesday, Diageo fell 1/4 to close at 36-1/8, while Seagram slipped dropped 1 to 54-7/8. 
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