Pernod Circling B-F with Acquisition in Mind

keepingPernod-Ricard is in talks to acquire Brown-Forman. Pernod has a market value of around $17 billion, while Brown-Forman has a market value of around $12 billion. There's no guarantee there will be a deal, they added.

When the possible transaction was disclosed by Bloomberg, Brown-Forman's shares jumped 10% and Pernod's slid 6%. But this isn't the first time Brown-Forman has been eyed by some corporate suitor. Whether a deal takes place will largely depend on the Brown family, descendants of founder George Garvin Brown, which controls more than 50% of the economic interests and 67% to 70% of the voting shares of Brown-Forman Corp.

The Brown Family has been known for its commitment to keeping Brown-Forman independent. Not only do a number of family members work in the company, but it has also constructed an elaborate mechanism to ensure its survival as an independent company.

There are two classes of stock, and the family owns 70% of Class A shares, which have super-voting rights. They also own a substantial number of Class B shares, estimated to be around 25%, although that number hasn't been disclosed. The company's not going to be sold unless the family wants to sell.

But it's not just a legal structure that makes Brown-Forman so hard for any raider or suitor. The family is hardly passive. Not only are a number of family members active in the business, but there is also a Brown Family Shareholders Committee, which meets twice a year and is a vehicle for family members who don't have an official role to interact with the company and to be kept constantly updated on its activities.

It's understood there are numerous cross buy-sell agreements that essentially require a family member to offer his shares to other family members before they can be offered to the public.

There are two investor relations officers, one for the family, one for the public. And for young family members, there are coloring books and other activities to orient them to the company, its business and the family's history.

Pernod is pitching a merger as a way to achieve "significant" operational synergies during a challenging period for the bev/al business in general. Neither company has cut its dividend, although both have taken significant cost-cutting measures.

Pernod's move comes in the wake of a 19% drop in its operating profit during the first half of fiscal 2026, largely driven by weak demand in the U.S. and China. Pernod has announced a $1.18 billion cost-cutting plan for 2026-2029.

In January 2025, the Louisville-based Brown-Forman said it would cut 12% of its workforce and close its barrel-making facility.

Pernod's timing isn't coincidental. Even though Brown-Forman stock jumped 19.25% after the announcement, the company is still down 22% over the past 12 months and it's currently trading at a 30% discount from Morningstar's estimate of fair market value.

Wishing Doesn't Make It So

While Pernod can hardly be described as "struggling," it's not the first company to seek a merger or acquisition as a quick fix.

Take a trip down memory lane: here are six companies where this strategy failed:

1. AOL acquired Time Warner. The idea was that you could marry old media with new, achieve tremendous synergies, cut costs by having AOL distribute Time Warner's content. Considered one of the worst mergers in history, the dot-com bubble burst almost immediately after the merger; AOL's dial-up business evaporated almost immediately, and expected synergies never were achieved.
2. Quaker Oats acquired Snapple. After Quaker's huge success with Gatorade, Quaker Oats thought it could repeat that with Snapple. But Snapple's success depended on independent distributors, not the centralized system Quaker Oats used.
3. Microsoft acquired Nokia, hoping to compete with Apple and Android by combining software and hardware. But the smartphone market had already coalesced around Apple, and those who didn't want Apple had already gone to Android.
4. Constellation Brands acquired Canopy Growth Corp. in a bet that cannabis would become a major adjacent category to alcohol – think THC-infused drinks. It didn't work out as expected, because, among other things, cannabis didn't become legal as quickly as believed. (That battle continues today.) Constellation took multi-billion-dollar write-downs on its investment.
5. Anheuser-Busch InBev acquires SABMiller. A-B expected to reignite massive growth with massive synergies, cost savings, and stronger exposure to emerging markets. The combined company took on massive debt, beer consumption slowed and premiumization failed to offset volum declines, and integration was complex. While not a failure, ABI spent years deleveraging and was severely constrained in its growth.
6. Constellation Brands acquires Ballast Point Brewing. CBrands paid $1 billion for Ballast point at the peak of the craft beer boom. The craft segment became saturated and Ballast Point didn't scale nationally as expected. Consumer tastes fragmented into local and niche brands. CBrands sold Ballast Point for $100 million, making this deal one of the clearest examples of value destruction ever.

The Fog of Business

And it certainly isn't clear ta merger would solve their challenges. To be sure, the combined entity could have one general counsel instead of two in each country, one chief financial officer, one global chief marketing officer, etc.

But the two companies' issues aren't back-office concerns. They are, rather, sales issues, in particular a secular decline in the market for distilled spirits and other alcoholic beverages.

All bev/al companies are facing similar struggles. The challenges of GLP-1 drugs face all food and beverage companies. The Neoprohibitionist "health" issue face all bev/al companies. And wine and spirits may simply be facing a normal generational rotation. In the 1980s, when I began covering the business of alcohol, beer was riding high. Later, beer went into a slump and wine and then spirits rode high. Now, wine and spirits are struggling and beer appears to be recovering.

T. Rowe Price, the Baltimore investment advisor whose firm survives him, used to warn that change is the businessman's only certainty. Charles Darwin is famous for his proposition that only the fittest survive. Darwin was wrong: It's not the fittest, it's the most adaptable that survive. And from the prehistoric era, it seems that being big is not the same as being adaptable. Like the wooly mammoth of prehistoric times, large firms can't adapt as fast as small to medium size firms.

Brown-Forman Class A stock closed up 5.63% at $27.19%, and in after-hours trading advanced to $27.56, up an addition 1.36%. Pernod Ricard closed at $64.70, up 7.94%.

Among other bev/al stocks we follow:

• Diageo ADRs closed down 3.8%. There didn't appear to be any particular reason for the ADR decline, and Diageo's stock closed in London up 0.68%.
• Constellation Brands closed up 0.66%
• Davide Campari-Milano closed u 0.20%
• Remy Cointreau closed up 0.73%
• Molson Coors Beverage closed up 3.2%
• Boston Beer Co. closed down 1.7%