Tuesday, June 07, 2005

Constellation out of the Bidding for Allied?

It appears that Diageo has chosen sides in the battle to carve up Allied-Domecq and they have chosen to side with Pernod Ricard (as they did when the two companies broke up Seagram's). Constellation has stated that they will make a bid (they have until June 29th to do so), but without the backing of Diageo, they are left with just Brown-Forman in their camp, a risk-averse company that will probably pick and choose the "cream of the crop".

Its interesting not only that Diageo chose a side so quickly but also that they are only interested in Montana, Allied's New Zealand wine brand, and Bushmill's Irish Whiskey. Both brands are relatively small in the big picture (the Irish Whiskey market is just a fraction of the Scotch Whiskey market) and don't seem to do much for the Diageo portfolio. The rumor was that Diageo initially wanted A-D's wine brands, but perhaps they've realized that Buena Vista, Callaway, Clos du Bois etc. aren't exactly "gems" and they've taken the opportunity to grab the best of what was available?

3 Comments:

Anonymous Anonymous said...

You need to do your homework before making statements about Montana being small beans and Clos du Bois and Buena Vista being undesirable, you obviously have a pallet but no business sense. If you knew the extent of distribution, profitablity and brand equity of these brands....well, you don't...just another reason for you to be cynical while showing your obvious lack of understanding of the wine business from a profit perspective.

July 03, 2005 1:05 AM  
Blogger Huge said...

Ha ha ha!
That's pretty rich, but hell you're welcome to act like an idiot if you want to. You might want to try looking at it in a "relative" sense. Remember, we're talking "BIG PICTURE" here...as in "BIG"...

However, I did like your pun with 'business sense'and 'pallet' (which you load cases onto for shipping - as opposed to 'palate' meaning "taste").
Good luck & thanks for sharing...

/huge

July 05, 2005 8:00 PM  
Blogger Huge said...

Furthermore, I stand by my previous comments. For a business that does over 15 million cases anually, A-D's wine portfolio is pretty ho-hum. Sorry that I seem to have struck a nerve there.

And in the big picture, Montanta is small beans. Yes it is the largest NZ producer with over 5 million cases, but it (by itself) is not a sizable company. Further A-D hugely overpaid for the asset at a price of 24 times EBITDA. It wasn't worth the US$ 560 million, but is/was a good business just not at that price. (My guess is that's where I hit the Kiwi nerve, but I'll continue).

Clos du Bois is a decent brand, does about 1.5 million plus cases, but has a low-end image (despite quality wines). Probably a diamond in the rough, but not a good strategic fit for Beam/Fortune as they already have Geyser Peak just down the road.

Buena Vista is a "dog" that was for sale for quite a while before A-D bought it for $85 million (another overpayment). Despite selling 472,000 cases it was still unprofitable! Brand equity is near zero, nobody wanted it in 2001 and nobody wants it now.

Callaway Coastal is a dying brand, little value there. Everybody and there mom has a "coastal" brand that's bleeding right now and this is another one.

Certainly there is profit in these brands and the others, or A-D wouldn't still be in the wine business, and of course the distribution is extensive - they're owned by a huge conglomerate! That wasn't my point.

Really, the only thing interesting about A-D's wine portfolio is whether Newlands or Brauer will end up heading the division for Fortune.

/huge

July 07, 2005 4:52 PM  

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