(March 27): Pernod Ricard SA and Brown-Forman Corp, the owner of Jack Daniel’s whiskey, are discussing a merger as the alcoholic drink companies look at ways to consolidate amid an industry downturn.
The French beverages company, with a market value of €15.6 billion, and Louisville, Kentucky-based Brown-Forman, with a market capitalisation of US$11.8 billion, said in statements that they were in talks to combine, confirming a report by Bloomberg News.
A combination would bring together Pernod’s top sellers like Martell Cognac, Jameson Irish Whiskey and Absolut Vodka with Brown-Forman’s whiskeys and other brands including Fords Gin and Herradura tequila. It would also unite two families with a long and deep history in the drinks industry in what the companies described as a “merger of equals”.
The Ricard family, who formed the French company in 1975 by merging Pernod and Ricard, are still significant shareholders in Pernod. Brown-Forman’s history dates back to 1870 with descendants of founder George Garvin Brown still largely controlling the group.
The transaction being contemplated has a significant stock component, said people familiar with the matter who asked not to be identified discussing private information. The family owners of both companies will likely both roll large stakes into the new company, with a deal still a few weeks away, the people said.
Representatives for Pernod and Brown-Forman declined to comment further on the structure and timing of an agreement.
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Shares of Pernod rose as much as 4.2% in early trading on Friday. The stock had closed down nearly 6% in Paris on Thursday, taking its decline since the start of the year to 18%.
While Brown-Forman’s owners haven’t been eager to sell the company, Pernod’s family ownership could help ease the way for a deal, JPMorgan Chase & Co analysts said in a report. “We would assume that any deal would be stock-based, which would allow the Brown family to maintain a significant ownership stake and share in potential longer-term upside,” the analysts wrote.
Class B shares of Brown-Forman rose as much as 21% on Thursday — an intraday record — before closing up 9.6% to US$25.74 in New York.
Pernod and Brown-Forman have each been looking at ways to strengthen their businesses at a time when consumers are drinking less and switching to less expensive liquors. Both companies have been battling particularly soft demand for premium liquors in the US.
Brown-Forman has said challenges from US tariffs have led to depressed sales abroad due to reciprocal levies. Canada has seen “the most significant impact” from the trade disputes, chief executive officer Lawson Whiting said during the company’s most recent earnings call, with sales in the country falling around 60% in the three months through October.
Like the rest of the industry, Brown-Forman is also dealing with decreased consumption stemming from people picking cannabis instead of alcohol and the impact of the popular GLP-1 weight loss drugs on demand. The company has called out persistent weakness is the US spirits market, with no clear end in sight.
Alongside a wearker US, Pernod has also faced lacklustre demand in China, after the mainland restricted duty-free sales of Cognac in retaliation for European Union tariffs on Chinese electric vehicles.
Paris-based Pernod has reacted to the slowdown in Cognac sales in recent years by building exposure to spirits like bourbon and tequila through acquisitions. In 2022, it agreed to take a majority holding in Código 1530 Tequila — a brand co-founded by the US country music star George Strait. The following year, Pernod agreed to buy into flavoured whiskey maker Skrewball.
This possible combination appears opportunistic given the difficult trading conditions for spirits companies, but suggests Pernod management believes the category will return to growth soon, wrote Duncan Fox, senior consumer products analyst for Bloomberg Intelligence. Any transaction would likely be via shares given Pernod’s stretched balance sheet at 3.9x net debt-to-Ebitda at the half-year.
A deal would create a leader in American whiskey and strengthen Pernod’s position in the tequila market, Fox said. Brown-Forman is the fifth-largest liquor-maker globally, according to data compiled by Bloomberg.
A transaction would give Pernod greater US exposure and grant Brown-Forman greater access to international markets like China and India, analyst at JP Morgan led by Celine Pannuti wrote. However, she said that while the deal does make strategic sense it’s an admission by the Brown-Forman family of a structurally lower-growth environment.
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