Morrison & Co Considers Strategic Shift Amid Challenging US Spirits Market

Brown-Forman Corp Considers Merger with Pernod Ricard SA

Brown-Forman Corp, the owner of the iconic Jack Daniel's whiskey brand, is reportedly leaning towards a deal with French distiller Pernod Ricard SA over a competing offer from American rival Sazerac Co. According to a person aware of the development, cited by Bloomberg, the potential merger would grant Brown-Forman a better route to market its whiskey in China and India, where demand is rising, thanks to Pernod's extensive distribution network.

The deal being contemplated would be 80% stock and 20% cash, people familiar with the matter said. This comes amid pressure on Brown-Forman, like other distillers, due to a swift drop-off in alcohol consumption, particularly among younger adults. The US spirits market is struggling, with off-premise sales averaging a stagnant 1% quarterly growth over the last three years, as per Bloomberg Intelligence.

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Sources aware of the discussions told Bloomberg that Brown-Forman sees Pernod as the better fit as the combined company could be diversified across geographies and types of spirits. Additionally, a deal with Pernod would give the 150-year-old family-controlled distiller behind Jack Daniel's a bigger stake in the business and more influence.

The potential tie-up between Brown-Forman and Pernod could create a leader in American whiskey, strengthen Pernod's position in tequila, and expand both companies' global reach. Meanwhile, Sazerac plans to submit a $15 billion all-cash offer for Brown-Forman, as reported by the New York Times on April 17th. Sazerac, with roots dating back to the 1630s, is heavily concentrated in the US market and has a whiskey-centric portfolio that closely overlaps Brown-Forman's offerings.

While the Brown family maintains control via two-thirds of the company's voting rights, an all-cash bid from Sazerac may appeal to minority shareholders eager to exit the volatile spirits sector. However, a merger would consolidate over 30% of the US whiskey market, which analysts at Barclays Plc say would likely trigger an "extended review" from regulators that may not be warranted under a Pernod combination, reported Bloomberg.

Talks between Brown-Forman and Pernod have also considered maintaining Louisville, Kentucky, as a key region for the combined entity. However, there is no clarity on whether the city would be the headquarters or just a major hub. With talks still underway, people aware of the matter have reportedly said there's no guarantee it would result in the sale of Brown-Forman.

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