Drinks and snacks group C&C is facing distribution problems and lower profits as a result of the £7.4 billion (€5.5 billion) takeover of Allied Domecq by Pernod Ricard and Fortune Brands.
Analysts estimate the deal could cost C&C between €1.5 million and €2.5 million in profits because it will probably force the company to give up the Irish franchise for Allied Domecq products.
Pernod already has an Irish distribution base, as well as owning a number of brands through Irish Distillers, and that will leave it competing directly with C&C.
As well as having to give up the rights to these products - brands such as Tia Maria, Malibu and Harvey's Bristol Cream - C&C is also expected to lose an international distributor for its own brands.
At the moment, Allied distributes C&C products such as Tullamore Dew and Irish Mist in international markets. A new distributor will now probably need to be found.
Pernod Ricard joint managing director Richard Burrows said last night that he was not yet able to say what would become of C&C's relationship with Allied Domecq after the deal was completed.
He said Pernod would soon enter into talks with third parties that might be involved if Allied allowed that.
C&C is currently in a closed period so could not comment on the consequences of the takeover yesterday. The company is expected to clarify the distribution issues when it releases results on May 10th. It is likely that comments will focus on a limited disruption in distribution rather than any impact on earnings. Goodbody and NCB were yesterday pencilling in a €2 million hit to profits.
Mr Burrows said the deal would be positive for Irish Distillers, the maker of Jameson whiskey and Cork Dry Gin.
"Pernod Ricard will be a stronger company around the world," said Mr Burrows, pointing to the stronger distribution networks that Irish Distillers will now be able to access.
He does not expect that Irish Distillers will need to sell any of its brands to satisfy the requirements of competition regulators as part of the Allied takeover.
Pernod and Fortune have agreed to split Allied's brands between them to allay anti-trust concerns, with Pernod taking Ballantine's, Beefeater and Kahlua liqueur, while Fortune gains Sauza, Courvoisier cognac and Maker's Mark bourbon.
The bid - 545p in cash and 0.0158 of a new Pernod share for every Allied share - will double Pernod's operating profit and boost its US presence, placing it second only to Smirnoff vodka and Johnnie Walker whisky maker, Diageo.
Shares in Pernod and Allied rallied after details of the agreed deal were released, with Pernod jumping 6.8 per cent to end at €124.8 after an earlier high of €125.8, while Allied shares climbed 3.4 per cent to close at 665p.
The rare upwards move in the bidder's share price - partly reflecting positive news on synergies and the likelihood of no counterbid - shows the market values the offer at 680p, rather than the stated 670p per Allied share.
The share move suggests Allied sold out too cheaply in a final mistake after an accident-prone history, but the group was keen to strike a deal to avoid a slump in its shares, which had risen sharply since talk of a deal started, analysts said.
"The deal was proposed by Pernod, so it is good for Pernod shareholders and presumably good for Allied," Pernod Ricard chairman Patrick Ricard told a news briefing.
C&C shares last night closed five cent weaker at €3.11.
(Additional reporting, Reuters)
