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News > International
Diageo, Pernod drink up
December 19, 2000: 3:51 p.m. ET

Diageo to pay $5B, Pernod puts up $3.15B, for Seagram drinks brands
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NEW YORK (CNNfn) - Britain's Diageo and France's Pernod Ricard agreed Tuesday to buy and divvy up Seagram's wine and liquor businesses for a total of $8.15 billion cash.

As part of the deal, the British-based food and beverage company will pay $5 billion for several Seagram brands, including Captain Morgan Rum, Crown Royal, VO and Seagram's wine businesses. Pernod Ricard has agreed to pay $3.15 billion for Chivas, Glenlivet and Martell brands from the portfolio.

graphicThe joint approach from Diageo PLC (DEO: Research, Estimates), the world's largest spirits company, and Pernod Ricard SA of France has trumped a competing offer from privately held Bacardi and Brown-Forman Corp. (BF.A: Research, Estimates) of the United States. Diageo and Pernod Ricard made their announcement after European stock markets closed for the day.

Diageo-Pernod will be selling Seagram's non-core businesses over a 12-month period, which will be coordinated by the supervisory team. The two companies will also be sharing overall economic interest, including profits and losses. Diageo will get 61.4 percent while 38.6 percent will go to Pernod.

UBS Warburg advised Diageo while J.P. Morgan and Societe Generale advised Pernod Ricard.

The split

In addition to Captain Morgan Rum, Crown Royal, VO and the wine business, Diageo is getting several local brands including Cacique rum in Venezuela and Spain, Windsor Premier Scotch whisky in Korea and Myers rum in the United States.

Diageo expects to incur one-time charges related to integration of about $700 million, most of which will be cash, and about 90 percent will be spent in the first full year of the acquisition, the company said.

The purchase will have a positive impact on Diageo's earnings per share, said Diageo Group CEO Paul Walsh.

"This transaction is the next step in transforming Diageo from a food-and-drinks group with four operating businesses, into a focused leader in the global beverage alcohol industry," Walsh said.

Pernod will receive Martell Cognac and Seagram's Extra Dry gin in addition to Seagram's Chivas, Glenlivet and Martell brands. The brands reported volumes of about 14 million cases and sales of $1.2 billion in fiscal 2000.

Pernod, the fifth-largest distilled spirits company globally, will now rank as the third-largest global distilled spirits company, Pernod said in a statement. The purchase of Martell, will also vault Pernod into second place in the cognac market and second in scotch-whiskey.

Pernod expects the deal to add to earnings in its first year.

Bronfman's out

Seagram is selling the spirits business following its takeover by Vivendi SA, the French communications and media company. Vivendi Universal (V: Research, Estimates), the new company, just wants to keep Seagram music and movie activities.

The sale of the spirits business creates after-tax proceeds that exceed Seagram's net debt, said Vivendi Universal CEO Jean-Marie Messier. "This transaction strengthens our balance sheet and helps to create real and immediate value for Vivendi Universal shareholders," Messier said in a statement.

Edgar Bronfman Jr., executive vice chairman of Vivendi Universal, also expressed satisfaction with the deal. The Bronfman family controlled Seagram for several decades and up until last Friday owned about 24 percent of the unit. In Vivendi Universal, the Bronfman family will have an 8 percent stake.

Seagram co-Chairman Charles Bronfman, dropped out of the bidding war in September because he did not have as much to offer in terms of financing and brand synergies as potential bidders Allied Domecq and Diageo PLC, both of Britain.

On the London Stock Exchange on Tuesday, Diageo stock closed up 0.8 percent at 715.62 pence, while in Paris, Pernod fell 0.2 percent to graphic62.60. Vivendi Universal slipped 1 percent to graphic75.05.

In the United States, Vivendi Universal lost 44 cents to $66.75 in afternoon trading Tuesday while Diageo fell 19 cents to $41.81.

Rival Allied Domecq PLC has cut an agreement with the distillery that manufactures the product, although Seagram and the bidders dispute whether this gives Allied control.

Some uncertainty also overhangs the distribution rights to Absolut vodka in the United States. Diageo and Pernod have teamed up to try to get past anti-competitive issues, and because Seagram wanted to sell the business as a whole, rather than dispose of the brands piecemeal.

Interested parties in the auction of the drinks business included early frontrunner Domecq, but the British firm bowed out citing the riskiness of the deal and complaining of onerous confidentiality demands made by Seagram. graphic

  RELATED STORIES

Bronfman shuns Seagram- - Sept. 8, 2000

Vivendi gets two bids for Seagrams - Dec. 12, 2000

Britain's Diageo and France's Pernod ink deal for Seagram bid - Dec. 6, 2000

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.