Old money or a new demographic: Brown-Forman faces a tough choice
Maker of Jack Daniel’s is attracting attention from rival spirits groups on both sides of the Atlantic
Hollywood super-influencer Kendall Jenner just sold a stake in her tequila company to a closely held US spirits company called Sazerac. Can the Kentucky-based distiller, its name largely unknown outside of the US, now use its charms to win over members of another storied drinks dynasty?
The family in question — the controlling shareholders of 156-year-old Jack Daniel’s maker Brown-Forman — so far seem resistant to Sazerac’s approach. Brown-Forman is in talks with France’s Pernod Ricard over a takeover.
It’s not hard to see why the Brown clan might prefer to team up with Pernod. The French drinks maker has a broad international network, including long-term growth markets India and China. It also owns whiskey — and whisky — brands including Jameson and Chivas Regal. Pernod’s sales are over twice Brown-Forman’s, but their market values are much closer.
Sazerac, while also backed by a historic family of drinks makers, has a more boisterous, new-money air. Even before the tie-up with Jenner’s 818 Tequila, it boasted bold, youth-oriented brands such as BuzzBallz, a luridly coloured pre-mixed cocktail often seen on sale at petrol stations. That’s a fickle market, but one that is growing rapidly, even as young Americans sour on alcohol compared with their forebears.
For a dispassionate shareholder, the only question is which bidder can pay more. Pernod’s offer, payable mostly in shares, is probably pitched around the company’s current $12.8bn market capitalisation. Given Sazerac is unlisted, its offer — which The Wall Street Journal says is worth $15bn — is presumably mostly in cash.
In terms of their scope to cut costs and fund a premium, there’s probably not much in it. Pernod offers more in its international network; Sazerac, with larger US revenue than Pernod, might find more close-to-home savings. Historically, large spirits mergers have delivered roughly 13 per cent of the target’s value in cost savings. Apply that here, and a deal might generate extra profit with a net present value of $3.8bn, enough to justify a premium of about one-third on where Brown-Forman was trading in March.
The wild card, though, could be more political. If Pernod clinches a deal, it would see one of the very few big US-owned whiskey brands pass into foreign ownership. Japan’s Suntory acquired Jim Beam and Maker’s Mark over a decade ago. Such questions shouldn’t matter, but probably do: it’s no coincidence that one of the first targets of retaliatory EU tariffs against the US during the first Trump administration was on bourbon.
With no deal yet publicly on the table, there’s time for bidders on both sides to up their game, and for the Brown clan, with its decisive stake, to weigh its options. Pernod may have the head start — but don’t count on knocking back a shot of Jacques Daniel’s any time soon.