Shotgun marriages usually don't work out, no matter how much Dad wants them to. So it may be a blessing in disguise that talks between
The market wasn't disappointed that the nuptials failed, as Allied Domecq's thinly traded shares climbed 5% Thursday to 9 3/4, while Seagram's more heavily traded ones added 3/16. Rival drinks giant
DEO:NYSE ADR) rose 3.4% to 45 7/8.
Ever since Diageo's formation from the 1997 merger of
, the City has pointed the gun at
Allied Domecq, the world's No. 2 spirits and wine company, to get hitched and boost competitiveness.
"We were No. 2 before that merger," says Allied Domecq spokesman Ross Fleckenstein, "but we went to a distant No. 2 afterward." While the company is No. 2 in spirits, its $7.3 billion in annual revenue actually puts it No. 4 when stacked up against international drinks giants Diageo ($23 billion), Seagram ($15 billion) and
LVMH Moet Hennessy Louis Vuitton
LVMHY:Nasdaq ADR) ($8 billion).
Some of Allied Domecq's brands include
scotch (the latter being James Bond's choice);
But John Hunter, chairman of Seagram's wine and spirits subsidiary, announced Thursday that after more than nine months of discussions, his company was no longer pursuing a merger or strategic alliance with Allied Domecq. Hunter said Seagram could go it alone.
The decision may not have been entirely Seagram's to make. Executive sources at both Seagram and Allied Domecq told us that Allied Domecq was growing increasingly uncomfortable with
Edgar Bronfman Jr.'s
preoccupation with the entertainment business (see
Christopher Byron's column on Junior's woes). Furthermore, Seagram's focus on the spirits business as a cash cow to feed showbiz acquisitions might result in a loss of value to Allied Domecq shareholders. In other words, given the events of the past year, Seagram could have turned out more like a robber bridegroom than a white knight.
So, the collapse of merger talks maintains Diageo's lead and keeps Allied Domecq from being saddled with the incessant fumbles of a company obsessed with show business. But it also raises the question of where Allied Domecq can go next.
"We're not ruling anything out," says Fleckenstein. "We're continuing to look at consolidation options, and if the right deal comes by, it'll happen." He says currently nothing is brewing, but the company would even consider deals with major competitors such as Diageo. "But it has to make sense, to add value," the spokesman continues. "We won't let the City force us into a deal."
But are there any real deals to be had? First of all, there just aren't that many global giants in the drinks field and certainly very few that could give it instant clout. The field is already incestuous, with LVMH owning about 11% of Diageo, with which it also has cross-distribution arrangements. Diageo, in turn, owns about 34% of LVMH's champagne and cognac subsidiary, Moet Hennessy. Rather than forging an instant multibillion-dollar deal to put it closer to the top, Allied Domecq may have to build through acquisitions or joint ventures such as the one it currently has with
Allied Domecq's diversification (
as well as restaurants, pubs and retail wine shops in Europe) gives it a wider range of acquisition and merger prospects than it would have as a purely spirits organization.
Fleckenstein says that going it alone may also be an option: "We're beginning to see advantages to being more nimble and more flexible."
In other words, all bets are off. And all bets are on. It's enough to drive an investor to drink.