Diageo seeks Malibu sale

October 30, 2001 Posted: 1928 GMT

David Jones

LONDON (Reuters) -- British beverage maker Diageo PLC is discussing the sale of its Malibu coconut rum line to France's Pernod Ricard in a move that could smooth the passage of the two companies' takeover of Seagram, industry sources said Tuesday.

Diageo (DGE) wants to sell Malibu to overcome the concerns of U.S. regulators and hopes to get £600 million-£650 million ($870 million-$950 million), although some sources believe £700 million is possible.

Talks with Pernod (1RPRI) are at an early stage, but the French firm clearly is the early favorite to clinch a deal after working closely with Diageo over the last 13 months on the Anglo-French bid for Seagram's wine and spirits business.

Other interested parties include the two largest U.S. distillers, Fortune Brands Inc., maker of Jim Beam bourbon, and Brown-Forman Corp., maker of Jack Daniel's. Diageo's chief rival in the global spirits world, Allied Domecq PLC (ALLD), is considered an unlikely buyer.

"A deal with Pernod would be the neatest for Diageo, and Pernod would like to gain a rum in the United States if it can come up with the financing and get approval from the U.S. regulators," one source said.

The U.S. Federal Trade Commission (FTC) blocked the $8.15 billion joint takeover of Seagram from Vivendi Universal (V: up $0.43 to $44.88, Research, Estimates) last week, arguing it would create a duopoly between privately owned Bacardi and Diageo in the U.S. rum market.

Bacardi is by far the top-selling rum brand in the U.S., followed by Seagram's Captain Morgan, Diageo's Malibu and Seagram's Myers. Diageo's earlier offer to sell Myers was not acceptable to the FTC.

Allied is considered an unlikely buyer of Malibu as it still is contesting control of Captain Morgan with Seagram and Diageo in the Puerto Rican courts after it struck an alliance with rum supplier Destileria Serralles for control of the brand.

Captain Morgan has a value of $1.8 billion, according to an indemnity payment Diageo will receive from Seagram if it loses the Puerto Rican court battle.

"If Allied moves for Malibu, it would have to give up its ambitions for Captain Morgan," the source said.

Diageo declined to comment on the progress of its talks with the FTC, but was confident the Seagram deal would be completed.

In the deal, Diageo is paying $5 billion for Seagram brands such as Captain Morgan, Crown Royal Canadian whisky and Myers, while Pernod is paying $3.15 billion for Chivas Regal scotch, Martell cognac and other brands.

Diageo CEO Paul Walsh told shareholders at Tuesday's annual general meeting that his company, Pernod and Vivendi Universal are working to bring the matter to a close as soon as possible.