Allied Domecq (UK)

Profile subscribers click here for full profile

At one time the world's #2 spirits company, UK-based Allied Domecq was acquired in 2005 by its smaller rival Pernod-Ricard for around $14bn. The company was broken up and its drinks portfolio shared between Pernod and co-bidder Fortune Brands (now Beam Suntory). Pernod kept Ballantine's whisky, Malibu and Kahlua, among others, while Fortune absorbed Maker's Mark, Sauza tequila and Canadian Club. Fast food chains Dunkin Donuts and Baskin-Robbins were sold at the end of 2005, becoming an independent company, Dunkin Brands.

Allied Domecq was the result of a complex series of corporate deals over many years. At its core were two separate mergers which took place in 1961 among what was then Britain's large collection of beer and spirits manufacturers. That year, three of the UK's leading brewers merged to create Allied Breweries. The trio were Ind Coope (established in Essex in 1799), Tetley Walker (a 1960 merger of Leeds-based Tetley, established 1822, with Walker Cain) and Ansells (established 1881 outside Birmingham). Each ran a large pub estate alongside their breweries, and as a result, Allied Breweries became at a stroke one of the country's biggest manufacturers and retailers of beer.

At the same time, another conglomerate was being formed by three wine and spirits companies, Showerings, Vine Products and Whiteways, who merged under the initials SVPW. As industry in general continued to consolidate in the UK in the 1960s, the two companies were brought ever closer together and in 1968, SVPW was acquired by Allied Breweries. A decade later, Allied took the decision to diversify into food as well, acquiring J Lyons & Co, the rump of what had been one of the country's earliest restaurant businesses.

During the 1930s, the Lyons Tea Rooms was the UK's most widely spread chain of eating houses for ordinary people. The business was founded in the late 1880s by entrepreneurs Isidore and Montague Gluckstein and Barnett Salmon whose families already co-owned a successful tobacco manufacturing business, Salmon & Gluckstein. They took a decision to diversify into catering services, and formed a partnership with Joseph Lyons, a cousin by marriage who had some experience of operating stalls at the many regional trade exhibitions which had sprung up in the wake of London's Great Exhibition of 1851. The partners' first venture was to provide catering services for the Newcastle Exhibition of 1887. Other such contracts followed, including catering for the new Olympia exhibition centre in London, and in 1894, under the name J Lyons & Co, the partners opened their first tea room in London's Piccadilly. At a time when most restaurants were priced well beyond the reach of ordinary Londoners, Lyons' more affordable tea shop proved a huge success and the company quickly established a chain of additional premises around London and in selected provincial and seaside locations. The chain was justly celebrated for the high quality of its food, the elegant art deco design of its outlets, and its team of smartly uniformed and efficient waitresses, known popularly from the mid 1920s as "Nippies".

As a result of the success of the tea rooms, Lyons also established several even larger restaurants in London, known as Lyons Corner Houses, each spread over four or five floors with its own inhouse orchestra, as well as a food hall, hairdressing salon and other amenities. The most celebrated of these large outlets was the lavishly decorated Trocadero, custom-built by the company adjoining Piccadilly Circus. To ensure the quality of the food it served, Lyons & Co expanded heavily into food manufacturing and from the late 1940s onwards began to sell its goods nationally through third-party groceries. Lyons-brand products included cakes, biscuits, ice cream (including Lyons Maid), tea (including Tetley), coffee and breakfast cereals (including Ready Brek).

At its peak, Lyons was the biggest food manufacturing company in Europe. It also established a substantial hotel chain, and even moved into industrial activities such as bomb-making during World War II and the development of early computer systems during the 1950s. Following the decline of its tea rooms after the war, the group established a chain of steak restaurants as well as Britain's first American-style hamburger chain, Wimpy. In the 1960s, however, Lyons lost its way, and the company began a steady decline which reached its climax in the recession of the mid-1970s. Most of the group's subsidiaries were sold off, and the remaining operations were absorbed by Allied.

In 1981 the enlarged group renamed itself Allied-Lyons. Four years later, it was targeted by rapacious Australian corporate raider Elders IXL, owners of Foster's lager. Allied mounted a spirited defence and the Elders bid was rejected. Instead the Australian company snapped up rival London brewery Courage, before launching another hostile bid (also unsuccessful) for Scottish & Newcastle. Although Allied-Lyons now operated across three separate divisions of Allied Breweries, J Lyons and Allied Vintners, it was increasingly the spirits and wine arm that became the focus of the business. In 1987, Allied-Lyons acquired Canadian distiller Hiram Walker-Gooderham & Worts, adding Ballantine's, Canadian Club, Courvoisier and Kahlua to the Allied Vintners portfolio. This deal also gave Allied a stake in Hiram Walker Europa, a joint venture with leading Spanish drinks group Pedro Domecq. Two years later, the group acquired Whitbread's spirits division, encompassing Beefeater, Long John and Laphroaig.

In 1993, the brewery business was merged with Carlsberg to form joint venture Carlsberg-Tetley. The group used the resulting funds to acquire a controlling stake in their Spanish partners in Hiram Walker Europa. Allied paid a huge £740m for a 73% stake in Domecq (and acquired the balance of shares in 1998). Domecq's brands already included two of the world's top three brandies, Presidente and Don Pedro, as well as #2 tequila Sauza, and the deal made the new Allied Domecq the world's #3 spirits company behind Grand Metropolitan's IDV and Guinness's United Distillers.

Yet the merger also created lasting problems for the group. On the day the Domecq deal was signed, a political assassination in Mexico, where half of Domecq's business originated, sparked off a freefall in exchange rates for the Mexican peso. This impacted heavily on the newly merged group's profits. Allied Domecq was dogged by a series of problems for the rest of the decade. Carlsberg-Tetley saw its market share slump mid-decade, while Allied's own brands were affected by a worldwide downturn in spirits consumption. The group countered by focusing more tightly on its core businesses of Spirits & Wine and Retailing. Tetley tea was sold to management in 1995, followed by Lyons Irish tea the following year (to Unilever). Also in 1996, the group sold its half-share in Carlsberg Tetley to Bass. (UK competition authorities later ruled against the deal, forcing Bass to sell on the shares to Carlsberg in 1997.)

The 1997 merger of Allied's two larger spirits rivals IDV and United Distillers to form Diageo came as a significant blow. Although Allied was elevated by default to #2 in the market, its distance from the newly created #1 was increased enormously. IDV and UD had each been only slightly bigger than Allied, but the combined business was twice as big. Allied began tentative merger negotiations with #3 spirits company Seagram, but these foundered over the issue of control. Instead, the group pressed ahead with disposals of underperforming assets. In 1998, it took control of Irish drinks group Cantrell & Cochrane (later C&C Group), buying out partners Diageo, before selling off the whole business to venture capitalists in 1999 for €734m (£519m). (That deal was the first major transaction to be made in the newly launched European currency). Also in 1998, Allied merged its off-licence business Victoria Wine with Whitbread's Thresher chain to form joint venture First Quench. The group's last food manufacturing interest was sold in 1999, when its 50% share in Spanish bakery business Panrico was sold to management.

Another dramatic transformation in the business was heralded by the 1999 announcement that Allied would sell its huge estate of 3,600 pubs as well as its share in soft drinks joint venture Britvic. Yet that deal was derailed when agreed buyer Whitbread's £2.4m all-share bid was countered by a higher offer from private company Punch Taverns, backed by rival brewer Bass. So began a see-saw of steadily increasing offers from both suitors. The situation appeared to be resolved when Allied gave its formal recommendation to a revised £2.9bn offer from Whitbread. Yet just as the two companies were celebrating their apparent victory, UK regulators threatened a competition investigation. This late intervention crushed the deal. Whitbread pulled out, and Punch took the opportunity to drop its price and carried off the estate for £2.75m. In a final twist, Whitbread used a last minute right of veto as an existing shareholder in Britvic to prevent the sale of Allied's 25% stake in the company to Punch.

Despite the long and bruising negotiations, Allied was left as a far more agile, spirits-focused business. Early the following year, the group confirmed that it was seeking a partnership with another drinks company in order to create a more equal competitor to Diageo. In 2000 it was announced that the Seagram drinks portfolio was about to go on the market, following that company's purchase by French conglomerate Vivendi. Although Allied was widely tipped as one of the frontrunners, it maintained a low profile, forming an alliance with Destileria Serralles, the Puerto Rican supplier of Captain Morgan rum, in a bid to capture that brand, arguably one of the most valuable in Seagram's portfolio. A month later, the group won distribution rights for Stolichnaya in the US, after expiry of Diageo's license; then acquired leading champagne brands Mumm and Perrier Jouet, which had been sold off by Seagram a year earlier.

With these strong brands already under its belt, Allied formally pulled out of the Seagram auction at the end of 2000. Officially Captain Morgan rum was acquired by Diageo for around $2bn, but Destileria Serralles claimed to have right of veto over the ultimate distributor of the brand. Forestalling a court ruling on ownership, Allied resolved the issue by agreeing to drop their claim on Morgan in return for the purchase of Malibu Rum brand from Diageo for £560m. They also paid Diageo £27.5m to buy sparkling wine Mumm Cuvee Napa, reuniting the Mumm portfolio under one roof.

Around the same time, Allied entered a savage bidding war with Australian drinks group Lion Nathan to acquire Montana, the leading New Zealand wine producer. After several months of rival bids, Lion Nathan unexpectedly pulled out of negotiations in August. A few days later Allied also announced the purchase of German spirits group Kuemmerling. This was followed by Spain's largest wine producer, Bodegas y Bebidas, for which the group paid €279m. There were also acquisitions of other vineyards in Argentina and the US. However Allied was later drawn into another ownership dispute in early 2002, when the Russian government began a case against Stolichnaya exporter SPI, claiming that the vodka was state-owned. This led to a temporary suspension of supplies until the matter was resolved. Later in the year Allied announced a partnership with Philip Morris's Miller Brewing division to launch two ready-to-drink malt beverages based on the Stolichnaya and Sauza brands.

In 2003 the group interrupted the sale of Australian winemaker Peter Lehmann Wines to Switzerland's Hess Group by making a higher offer of its own. However it was later forced to withdraw from the fray as a result of firm opposition from PLW's founder Peter Lehmann. Meanwhile Allied Domecq became ever more adventurous in its marketing. In 2003 the group licensed several of its brands to UK food company Loseley for a range of flavoured desserts including Malibu tropical trifle, and to beverages company Fine Foods for a range of flavoured hot drinks, including Tia Maria hot chocolate and cappuccino. Even more adventurous was the launch of a Courvoisier fashion collection in early 2004.

Drinks industry commentators had for several years highlighted the benefits of a merger of Allied Domecq with Pernod-Ricard to create a stronger global rival to Diageo. That combination finally became a reality in 2005 when Pernod, backed by US-based Fortune Brands, agreed to acquire Allied for around $14bn. A rival bid was assembled by Constellation Brands and Brown-Forman of the US but subsequently collapsed as a result of a disagreement with Allied over terms and pricing. As a result, Pernod's offer was approved by Allied Domecq's shareholders in July 2005. The French company absorbed the largest proportion of Allied's brands including Ballantine's, Kahlua, Malibu and Tia Maria as well as most of the wine and champagne portfolio. The remaining brands, including Maker's Mark, Canadian Club, Sauza tequila, Courvoisier and Californian wine label Clos du Bois, were passed on to Fortune Brands. Restaurant business Dunkin' Brands was sold to private equity investors. Allied Domecq chief executive Philip Bowman resigned following completion of the deal. The group's last reported net revenues, for 2004, were £2.6bn with net earnings of £382m.

Last full revision 3rd October 2017

All rights reserved © Mind Advertising Ltd 1998-2022