Allied Domecq is expected to sell drinks group Cantrell & Cochrane (C&C) in its entirety in a flotation early next year that is likely to value the Irish drinks group at well over £700 million.
Allied Domecq has appointed Investment Bank of Ireland (IBI) and Goldman Sachs to carry out a strategic review of the Irish drinks group following its purchase of Guinness's 49.6 per cent of C&C for £270 million, but a flotation in early-1999 is now seen as inevitable.
While Allied has emphasised that IBI and Goldman Sachs will explore all the options - holding on to C&C, a trade sale and a flotation - informed sources believe that a flotation is by far the most likely option, with Allied selling its entire stake.
It is also the option that would give Allied the best return on its recent acquisition of the Guinness stake. Drinks industry sources believe it would be difficult to find a trade buyer for C&C, which would pay the sort of money that a flotation would generate. Potential trade buyers would probably prefer to buy some of C&C's brands rather than the entire company, said one source.
C&C is a hugely profitable and cash-generative company. But industry sources believe its wide range of alcoholic and non-alcoholic products - ranging from Tullamore Dew whiskey to Ballygowan mineral water, and from Club Orange to Irish Mist to Bulmers cider - hardly fit into a portfolio of a drinks group like Allied Domecq, which professes to be focused on global spirits brands.
C&C management is understood also to favour a flotation of 100 per cent of C&C on the Dublin and London markets, but wants to maintain the marketing and distribution relationships it currently has with Allied Domecq. C&C, however, will be happy to see an end to the current non-competitive relationship it has with Allied, where C&C is prohibited from making acquisitions that compete directly with the British parent.
This no-competition clause has meant that C&C has been severely restricted in the sort of acquisitions it can make, despite having the financial capacity to spend in excess of £100 million without putting any pressure on its balance sheet. In recent years, C&C has acquired a number of Italian liqueur businesses and bid for a number of drinks privatisation in eastern Europe.
In the rapid consolidation of the international drinks business, it is likely that the likes of Diageo, Seagram's and Allied Domecq will dispose of more brands which do not provide sufficient scale within their overall business. Those brands being sold off, however, would be of substantial scale for a company like C&C and would allow the Irish company to further diversify its portfolio of brands. If and when C&C is floated on the markets - a dual flotation in Dublin and London is likely - there is likely to be plenty of demand from investors, with institutional cash-flow currently strong and likely to be at least as strong by this time next year.
As a drinks share, C&C would also fill a gap in the Irish market that has existed since Irish Distillers was taken over by Pernod Ricard 10 years ago.
C&C's financial record, as well as its exposure to the Irish economy, is another attraction for investors. In the 12 months to the end of last August, the group had pre-tax profits of £52.2 million, after-tax profits of £45.3 million and sales of £366 million. It also closed its financial year with cash of £65 million - indicating its capability to make acquisitions if the current restrictions on the sort of businesses it can buy are lifted following any sale by Allied Domecq.
Industry sources believe that the group is likely to turn in profits in excess of £60 million for the year to the end of next August, with its cash pile also substantially higher given the absence of a major acquisition in the current year.
