updated 4/21/2005 2:57:38 PM ET 2005-04-21T18:57:38

Pernod Ricard launched a much-anticipated takeover for its larger British rival Allied Domecq on Friday, a $14.2 billion deal that will make the combined entity the second-largest liquor company and a more serious challenger to world leader Diageo PLC.

Pernod, which already has Martell cognac and Jacob’s Creek wine in its drinks cabinet, said the deal will fill a gap in its liqueurs lineup, provide a stronger foothold in the lucrative U.S. market and boost earnings per share in the first year.

Allied brands to be taken up by Pernod include Beefeater gin, Malibu rum, Tia Maria and Kahlua liqueurs, Stolichnaya vodka and Ballantine’s scotch. It will also acquire premium wines such as Mumm, Montana and Perrier Jouet.

The deal will make the combined company “the true No. 2 in the world, and hopefully a true competitor to Diageo,” said Pierre Pringuet, Pernod Ricard SA’s co-managing director.

Allied and Pernod are the current No. 2 and No. 3 in the global drinks business, and analysts agreed that the blended company would have the muscle to challenge British-based market leader Diageo, which has brands including Guinness stout and Johnnie Walker scotch.

Allied Domecq, which also announced Friday that its first-half net profit soared by nearly 20 percent on the back of growth in its core spirits brands and restaurant unit, said the deal would build on its own success in transforming the company over the past five years.

“The market capitalization has almost doubled, increasing by 3.6 billion pounds ($6.89 billion),” said Chief Executive Philip Bowman. “The recommended offer put before the business by Pernod Ricard provides Allied Domecq shareholders with the ability to crystallize some of that value.”

Pernod is offering the equivalent of 670 pence ($12.90) per Allied Domecq share, representing a premium of about 36 percent on Allied’s closing price on Feb. 3, the last business day before speculation of a deal arose. Pernod proposed to pay 5.45 billion pounds ($10.5 billion) in cash and issue 17.5 million new shares to complete the funding.

To appease regulators and help with finances, Pernod plans a three-way deal in which it will sell some of the brands it acquires from Allied to Fortune Brands Inc., a U.S.-based liquor, sports equipment and household products company, for about 2.8 billion pounds ($5.4 billion). Fortune, which already distributes Jim Beam whiskey and Absolut vodka, is also taking on Allied’s distribution networks in Britain, Germany and Spain.

Brands being purchased by Fortune include Canadian Club whisky, Courvoisier cognac, Maker’s Mark bourbon and Sauza tequila, and the super-premium Californian wines. Fortune will also acquire Pernod’s Larios brand. Handing off Courvoisier will avoid giving Pernod, with its Martell brand, more than half of the cognac market in Britain.

Fortune said the additions will double its spirits and wine sales, putting it among the top four spirits companies in the world.

“We see the purchase of these exceptional, complementary brands as an excellent high-return growth opportunity that will fill gaps in our portfolio and take our very profitable spirits and wine business to the next level,” said Fortune Brands Chairman Norm Wesley.

Fortune Brands shares rose $2.10, or 2.5 percent, to $85.95 in afternoon trading Thursday on the New York Stock Exchange.

Dresdner Kleinwort Wasserstein said the complexity of the deal made a counter offer for Allied Domecq highly unlikely.

However, questions remain over the future of Stolichnaya, the world’s best-selling vodka, following a statement from the brand’s Russian owner, SPI Spirits Group, this week that it will reconsider its deal with Allied Domecq if a takeover goes ahead. Bowman declined to comment on the distribution rights for Stolichnaya amid reports that SPI reportedly has the power to pick another distributor if its partner is taken over — raising doubts about Stolichnaya’s distribution in the lucrative U.S. market.

Pernod Ricard Chief Executive Patrick Ricard noted that the Beefeater brand and “the contract with Stolichnaya in the States, which normally should run over five years, will again give us more strength with the white spirits.”

Bowman said the overall acquisition, if approved by shareholders of both companies, is expected to become effective at the end of July or early August. The transfer of brands would occur as soon as possible after that date and within the following six months, he added.

Shortly after announcing the takeover deal, Allied Domecq reported that net profit in the six months ended February 28 rose 19 percent to 199 million pounds ($381.28 million), from 167 million pounds a year earlier. Sales fell marginally to 1.7 billion pounds ($3.28 billion) from 1.704 billion pounds a year earlier.

Bowman said the company overcame a difficult market in Western Europe and was led by good growth in the core spirits brands, premium wine brands and the Dunkin’ Brands fast-food restaurants, comprising Dunkin’ Donuts, Baskin-Robbins and ToGo’s Sandwiches.

Richard Burrows, joint managing director of Pernod, said the French company is making plans to seek a buyer for the Dunkin’ brands.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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