Allied Domecq has announced that it will recommend shareholders accept a 670p per share offer from Pernod Ricard, to create the second largest spirits and wine company in the world.
The deal will enable shareholders to exchange their shares for 545pence in cash and 0.0158 of new Pernod Ricard shares for every Allied share they hold. In total Pernod Ricard will issue 17.5 million new shares to Allied shareholders, representing approximately 20% of the issued Pernod Ricard share capital.
The share element of the deal will enable shareholders to retain a stake in the enlarged company. Although 80% of the offer will be made in cash, shareholders can mix and match the portion of cash and Pernod Ricard shares they receive, subject to the decisions of other Allied shareholders.
The deal will see Allied's brands split between Pernod Ricard and Fortune Brands. The American drinks company will purchase a set of Allied assets from Pernod Ricard, including Courvoisier, Maker's Mark, and Sauza, as well as premium California wines including the Clos du Bois brand, for £2.8bn.
The majority of the Allied Brands will remain with Pernod Ricard, including Ballantine's, Beefeater, Kahlúa, Malibu and Tia Maria.
Shareholders who held a stake in Allied before the speculation of an offer began on 3 February will receive a premium of 36.2% on the closing share price that day of 492pence. Those who held a stake on 4 April, the last full day before an announcement of preliminary discussions between the two companies, will receive a 24.8% premium on the share price at the close of that day, 537pence. Shareholders will also still receive a 6.5pence interim dividend announced by Allied today.
Both companies have entered into a deal that will see Pernod Ricard pay Allied £37m if Pernod Ricard's shareholders do not agree to the deal. While Allied will pay the same sum if a competing offer is made in the next months for the company and is successful.
Patrick Ricard, chairman and chief executive officer of Pernod Ricard, said: "I would like to say how excited we are by this transaction, which is a major strategic step in Pernod Ricard's development. I believe that Allied Domecq's magnificent portfolio of brands has a great future within our group."
Philip Bowman, Allied chairman, said: "The offer for the business from Pernod Ricard provides Allied Domecq shareholders with the ability to crystallise value and an opportunity to participate in the future success of many of our brands within the enlarged Pernod Ricard business."
Allied Domecq announced that turnover at the company was flat for the last six months at £1.7bn compared to the same period last year. Profit before tax was up 7% to £285m and group operating profit was up 4% to £349m.
Trading profit at the company's quick service restaurants, including Dunkin' Donuts and Togo's, was up 36% to £45m. Volumes of sales of the company's wines and spirits brands fell by 1% and net turnover rose by 1%. The company's strategy of focusing its marketing spend on core brands like Malibu and Maker's Mark, saw those become the key drivers of growth while sales of the non-core brands fell.
Overheads in the spirits and wine division were down by 2% and net debt was reduced by £118m. Earnings per share were up 7%, or 12% at a constant exchange rate, to 19.2p and an interim dividend of 6.5p was announced, up 11% from last year.
Bowman said: "We achieved strong earnings growth in spite of tough trading conditions in many markets. Our performance was led by good growth in the core spirits brands, strong trading in our premium wine brands and another excellent result from our quick service restaurants."
