What promises to be a battle for the booze is proving something of an extravaganza for UK law firms, with no fewer than four UK firms advising on bids and possible counter-offers for Allied Domecq.
Last month, Pernod Ricard and Fortune Brands announced an agreed €10.7bn (£7.25bn) offer for Allied, the world’s second-largest spirits group. But soon after, US wines group Constellation Brands announced that it was considering making a counter-offer. Ashurst has secured the lead role for Constellation. It is understood that the firm, led by partners Adrian Clark and Stephen Lloyd, won the work through Rothschilds, which is acting as financial adviser.
Constellation’s consortium also includes Brown-Forman, the owner of Southern Comfort and Jack Daniels, as well as private equity houses Lion Capital and Blackstone. It is understood that Lovells and Wachtell Lipton Rosen & Katz have been drafted in by Brown-Forman, while Weil Gotshal & Manges is acting for Lion Capital.
France’s Pernod turned to longstanding adviser Macfarlanes, with Debevoise & Plimpton advising on the US aspects of the deal. Herbert Smith secured first-time instructions from Fortune, the US group that has teamed up with Pernod to take over Allied. It is understood that the firm won the work following a referral from Fortune’s regular legal adviser Chadbourne & Parke and financial advisers Credit Suisse First Boston (CSFB).
Pernod has indicated that it will fund the £7.25bn offer through a combination of cash and shares. The French group has already ceded some brands to Fortune, raising €3.5bn (£2.37bn). Pernod will also raise around €8bn (£5.42bn) in equity and debt, with the remainder coming from a sell-off of Dunkin’ Donuts, Baskin-Robbins ice-cream and other non-drinks assets of Allied. Clifford Chance partner Karen Hodson has landed the mandate to advise Pernod’s banks on the bid. As first revealed on www.thelawyer.com (29 April), the magic circle firm is understood to be advising JPMorgan, Morgan Stanley and CSFB.
Allied is being advised by Linklaters corporate partners David Cheyne and Dominic Welham. The UK group has a market value of just over £7bn, although according to reports Pernod and Fortune will have to pay £9bn to clinch the takeover.
But one question remains: where is Diageo? The world’s leading drinks company indicated earlier this year that it was not interested in Allied; but that, of course, was before the Pernod bid had been agreed. Competition issues make it unlikely that Diageo could launch a bid itself, but rumours abound that the group might join the Constellation consortium. Naturally, no one is commenting, but if Diageo did enter the fray, it would almost certainly instruct its long-time corporate counsel Slaughter and May.
If the Allied takeover goes ahead, Pernod would become a true rival to Diageo, until now the uncontested market leader. The takeover would double Pernod’s size and bring it a stable of leading brands, including Beefeater gin, Stolichnaya Vodka, Ballantine’s whisky and Malibu rum.
A key issue for Constellation is Allied’s pension deficit, reported to be at least £387m. Pernod and Fortune have agreed to take on the pension deficit, but it is not clear how the Constellation consortium would plug the hole. One source close to the deal said: “It’s still at a very, very early stage. We won’t see any developments for a while – this is a long game.”
And, of course, it is long games that corporate lawyers love the most.