Brown-Forman to make first move in £300m Glenmorangie bid battle

Published on Sunday 29 August 2004 00:56

BROWN-FORMAN, the drinks group behind Jack Daniel’s, will launch a formal bid for Glenmorangie, the Scotch whisky producer which was put up for sale last week.

US-based Brown-Forman refused to say anything about Glenmorangie in public but has let its industry contacts know that it will bid for the Scottish company, which was valued at just under 250m at Friday’s close.

Brown-Forman already distributes Glenmorangie’s products in the US and continental Europe and hold 9.6% of the voting rights in the company. It does not have a Scotch whisky brand of its own.

One senior industry figure said Brown-Forman would be a front runner from the start: "They already own nearly 10% of the company, so they can effectively afford to bid 10% more than anyone else for the same amount of money. It will be hard for anyone else to overcome that."

Brown-Forman is expected to contact NM Rothschild, the merchant bank handling the sale, within weeks. The bidding process was triggered by the decision of the Macdonald family to sell its 52% stake last week.

One of Glenmorangie’s biggest shareholders said Brown-Forman, based in Louisville, Kentucky, would face tough competition. Nick Train of investment management firm Lindsell Train, which holds a stake that accounts for roughly 6.5% of the voting rights, said: "I am certain there will be interest. I would be amazed if there was not more than one potential bidder that emerged. It is an incredibly strong brand. It still looks a bit undervalued, even after the rise this week."

He added: "It is a rare opportunity. There are not many offerings such as Glenmorangie left in the market, particularly publicly quoted companies."

Other potential bidders include Bacardi, which distributes Glenmorangie in some countries, and Moet Hennessy, the French drinks group.

Competition rules are likely to exclude Diageo, the world’s biggest drinks group, but London-based Allied Domecq is thought to be a strong candidate because it owns relatively few malt whiskies.

Dominic Roskrow, the editor of Whisky magazine, said: "I wouldn’t want to rule Allied Domecq out. In the past few years they have made more of an effort with their malt whisky brands."

Allied sold its Ardbeg distillery to Glenmorangie for 7m in 1997. But the London-based group may be keen to acquire the Glenmorangie distillery in Easter Ross.

Glenmorangie’s chief executive, Paul Neep, said last week that competitors of Brown-Forman would see their bids treated fairly despite the close working relationship between the US group and Glenmorangie.

Shares in Glenmorangie leapt by 36% last week, valuing the group at an all-time high of 246m. Investors may hold out for 320m, using the same valuation model that was applied to The Macallan malt when it was bought by Edrington in 1999.

Malt whisky is one of the fastest-growing categories of the international spirits trade, spurred on by consumers looking for higher quality. By contrast, the traditionally more popular blended whiskies are barely holding on against vodka, rum and alcopops. Glenmorangie is regarded as one of the top malt whisky producers and similar opportunities are unlikely to come up this decade. Its flagship brand is the UK’s most popular and the world’s sixth most popular malt.

But some observers believe the West Lothian company is already overpriced, given that it has yet to make more than 10m a year in pre-tax profits. As well as its two leading malts, it makes Glen Moray, a budget malt, and a number of blended and supermarket own-label whiskies.