Brown-Forman Corp stock jumped on reports it had held preliminary merger discussions with Pernod Ricard as the alcoholic beverages sector responds to the challenges of rising costs and falling demand.
Brown-Forman Class B shares (NYSE: BF.B) closed US$2.26 (9.63%) higher at $25.74 on Thursday (Friday AEDT) after media outlets reported the two companies had talked about combining their businesses.
This capitalised the American company that makes Jack Daniel’s whiskey at US$11.88 billion (A$17.2 billion), but earlier in the session the share price was up as much as 21%.
However, shares in Pernod Record ended €3.64 (5.73%) lower at €59.94, capitalising the world’s second largest spirits producer at €15.25 billion (US$17.53 billion), due to worries about the cost and risks of such a large acquisition.
The talks were first disclosed in this article by Bloomberg, which cited an anonymous source familiar with the matter.
A merger makes strategic sense in that although the French company’s spirits portfolio includes Jameson Irish whiskey, Ballantine's and Chivas Regal Scotch whiskey and Absolut vodka it has relatively little exposure to American whiskey.
Although a deal is not certain, the talks reflect a move toward consolidation across a sector struggling with a slump in sales due to slowing demand, tariff pressures, executive departures and asset sales to cut costs, according to media reports.
Berenberg analyst Javier Gonzalez Lastra said a merger would not solve their growth challenges but offered synergies.
"They have clear overlaps in the U.S., there is also some overlap in Europe," he was quoted in a Reuters article as saying.
"I see this as a defensive move, given the industry environment."
