There's plenty of festive cheer at Diageo and Pernod with the announcement that Seagram's drinks brands will finally come their way. The move strengthens Diageo's position as market leader and provides Pernod-Ricard with a valuable boost in the US market. It is also highly likely to lead to further industry consolidation.
The end of the Seagram auction saga significantly changes the face of the spirits manufacturing landscape. Diageo will get 61.4% of the Seagram business, which will push its brand share in the US from 15% to 22%. Pernod-Ricard, meanwhile, becomes the world's third-largest spirits company.
The prize is not only Seagram's unequalled distribution in the US, but also the chance to handpick some of the few remaining truly global brands in an otherwise sluggish market. Diageo is playing down anti-trust concerns, since Pernod-Ricard will acquire all the Seagram whisky brands, and Diageo's market share will still fall below the critical 30% margin.
Nonetheless, the deal will set off more consolidation in the drinks industry as companies seek to safeguard their future. Jim Beam, Remy Cointreau and Highland Distillers already operate a joint distribution venture, Maxximum, which could develop into a full-scale merger. Bacardi-Martini, Brown-Forman and Vin & Sprit, meanwhile, who bid jointly for Seagram's drinks business, may also seek to develop their relationship further.
Allied Domecq, the second largest global spirits company, has placed its hopes on securing the Captain Morgan rum brand. The owner of the rights is still disputed; the decision is in the hands of the Puerto Rican courts. Should Allied fail to win its battle, it will be left severely weakened, although it would still be a formidable merger partner. In the event that Allied wins Captain Morgan, Diageo will pay approximately $2 billion less for its share of the Seagram brands.
Both the food and drinks industries continue to show that the philosophy is that 'bigger is better.' This will certainly mean more change and consolidation in the New Year. However, only time will tell whether it will all, in the long term, be good for consumers.