The Splitting of Allied Domecq – Whiskey, Wine and Donuts

April 21, 2005 marked a most important date in the wine and spirits and industry.  On that date, British beverage and fast food conglomerate Allied Domecq agreed to be acquired by Pernod Ricard of France for $14 billion, marking one of the biggest deals in the industry’s history.  The deal reshapes the industry, making Pernod a liquor giant and leaving behind smaller competitors. These competitors may have to merge to compete, be content with being slow-growth niche player.

With the acquisition of Allied Domecq, Pernod would increase its total production by over 60% and achieve a scale that closely rivals the industry leader Diageo.  With the acquisition, Pernod added prestige the champagne brands Perrier Jouet and G.H. Mumm as well as major global brands Beefeater and Ballantine’s among others.

The U.S. conglomerate Fortune Brands also benefited tremendously from the deal.  Fortune struck a deal with Pernod to acquire overlapping brands including Maker’s Mark and Courvoisier. Fortune also added Allied’s valuable wine portfolio adding high-volume wine brands such as Clos du Bois, Buena Vista and Callaway. Overnight, Fortune quadrupled its wine production in California and became the largest producer in Sonoma County.  It will establish itself as a contender in an area that’s becoming dominated by E&J Gallo Winery, Constellation Brands Inc. and the Wine Group.

Overall, the Allie Domecq deal highlights the strategic imperative of public traded beverage companies to grow profitability through scale and brand diversification. Fortune’s major bet on wine is also indicative of the changing consumer preferences of the times.

As an interesting aside, Allied Domecq was also the owner of Dunkin’ Donuts, an asset that was deemed by Pernod to be non-core and divested to a consortium of private equity firms. It should be noted that Allied did not have port wines in its portfolio which could have stood up to Dunkin’ sugary goodness.