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Tuesday, 19 December, 2000, 18:11 GMT
Seagram splits drinks empire
Spirits shopper
Deal tightens Diageo's grip on world drinks market
The Anglo-French team of Diageo and Pernod-Ricard has clinched an $8.15bn deal to buy Seagram's wines and spirits business, beating off a rival challenge from a Bacardi-led consortium.

The deal will extend Diageo's lead in the world's drinks industry, where it is already twice the size of the second largest group.

It will also boost Pernod's size sufficiently to make it a challenger for Allied Domecq's role as the world's number two.

"The Diageo and Pernod team offered the best deal - the highest price, the least anti-trust problems and the quickest way of Vivendi getting its cash," according to one source close to the deal.

Cost-savings

Diageo and Pernod's cost saving synergies will be greater than those of their competitors, and this is why these groups were able to place such a high bid, industry experts said.

Allied Domecq pulled out of the bidding on Wednesday because it said it had secured several Seagram brands individually without having to buy the whole company.

But analysts said at least one of these deals, with the Captain Morgan rum supplier in Puerto Rico, is liable to be challenged in the courts.

The other individual deals, the acquisitions of two champagne brands Mumm and Perrier Jouet, were "small beer", the analysts said.

Diageo and Pernod agreed ahead of their joint bid on how Seagram's brands should be divided between them to avoid anti-trust problems.

Diageo, wanted access to Seagram's Captain Morgan dark rum and its Crown Royal and VO Canadian whiskeys to add to its famous Johnnie Walker whisky and Smirnoff vodka.

Diageo's smaller bidding partner Pernod wanted Seagram's Scotch whisky brands, including Passport, Chivas Regal and Glenlivet, as well as its gin brands.

Seagram's Martell, the world's number three cognac, will be sold off separately.

Vivendi merger

The Seagram drinks business was put up for sale after the $24 billion merger of Vivendi with Canada's Seagram and Canal Plus.

The deal linked Seagram's entertainment holdings - including Universal Studios, Universal Music Group and theme parks - with the Internet and telecoms empire being developed by Vivendi.

The drinks portfolio was left out in the cold.

The wines and spirits division was formally put up for sale in September in an auction organised by US investment bank Morgan Stanley Dean Witter.

The business includes around 250 drinks brands and brand extensions.

The drinks business was founded in 1924 by Samuel Bronfman, who skirted liquor laws during the US prohibition.

Samuel's grandson Edgar Bronfman junior, as chief executive of Seagram, agreed the Vivendi merger and the sell-off of the 76-year-old Montreal-based drinks business.

The Bronfman family owned 24% of the orginal Seagram group.

Diageo was formed in December 1997 by the merger between Guinness and Grand Metropolitan which formed the world's largest spirits group, with over twice the volumes of the next biggest company Allied Domecq.

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See also:

13 Dec 00 | Business
Legal battle brews over rum brand
12 Dec 00 | Business
Seagram's drink race nears end
13 Oct 00 | Business
EU clears Vivendi-Seagram merger
18 Aug 00 | Business
Drinks firms mix for takeover bid
20 Jun 00 | Business
Vivendi buys Seagram
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