Diageo, Pernod to Bid for Seagram Unit

NEW YORK —  Diageo, the world’s largest liquor company, said Friday that it will join with French distiller Pernod Ricard to bid for Seagram Co.’s $7-billion wine and spirits empire.

Seagram, which has said its drinks business is a nonstrategic asset in its proposed merger with French utilities and media group Vivendi, declined to comment on the report of the Diageo-Pernod Ricard plan.

However, a source familiar with the situation said an offering memorandum was being prepared and was expected to go out before the end of August.

Investment bank Morgan Stanley is expected to publish its book with financial facts on Seagram’s drinks unit within weeks, kick-starting the auction process. Sources said the Seagram drinks unit would fetch between $7 billion and $8 billion.

If the deal were to go through, it would mix a veritable cocktail of the world’s top brands. Seagram has Chivas Regal Scotch, Martell cognac, Crown Royal Canadian whiskey, Captain Morgan spiced dark rum and the distribution rights for Absolut vodka.

Britain’s Diageo, which is the parent company of Burger King and Guinness, has Johnnie Walker Scotch, Smirnoff vodka, Gordon’s gin and Baileys liqueur. Pernod’s brands include Wild Turkey bourbon, Jameson Irish whiskey, Havana Club rum and France’s traditional aniseed spirits, Ricard and Pernod.

The planned joint bid cast doubts over the chance of Allied Domecq’s buying Seagram’s drinks unit. Allied Domecq is the second-largest liquor company in the world.

But industry analyst Ian Shackleton at Donaldson, Lufkin & Jenrette didn’t think Allied’s bid was on the rocks. “I would still back Allied, as it is a single buyer, and it comes back to who is in control.”

On Wednesday, Seagram Chief Executive Edgar Bronfman Jr., whose Montreal-based company also owns Universal Studios, Universal Music Group and theme parks, reiterated to reporters that he wanted to sell off the 76-year-old family-run liquor side of the business.

“As part of the Vivendi-Universal merger, we plan to sell our spirits and wine business. [But] because we are currently in discussions with our advisors as to how best to monetize these assets, I can’t comment extensively.”

Bronfman said no more about prospective suitors during a conference call to discuss Seagram’s fiscal fourth-quarter earnings.

In June, when the proposed $34-billion merger with Vivendi was announced, he signaled that the family liquor business was up for sale. “This business is a nonstrategic asset of Vivendi-Universal,” he said, adding that the company would look at ways to “maximize value for shareholders.”

In a joint statement in London on Friday, Diageo and Pernod said they had struck a deal to split up the Seagram drinks business 50-50 if their bid were successful, with agreement over who would get which brands.

“Diageo and Pernod Ricard announce that they have agreed to work together to make an offer for Seagram’s wines and spirits business in the forthcoming disposal process,” the companies said in a statement.

Diageo had been in talks with privately owned Bayard Ltd. over a joint bid for Seagram, but industry sources said Pernod came up with a much better offer that helped forge the Anglo-French alliance.