It’s extraordinary that such an attractive portfolio of spirits brands as that owned by the Canadian conglomerate Seagram should be proving such a problem to sell. Seagram has made the disposal of its drinks arm look like it’s trying to sell typewriters, or the last generation of mobile phones.
It’s obviously not that its brands portfolio is outdated. Global beverages marketers of the standing of Allied Domecq should be biting the Canadians’ arms off to get their hands on the likes of Captain Morgan, Chivas Regal and Martell, not to mention the worldwide lines of distribution that they command. And, in truth, it doesn’t look as though such potential buyers are anything other than enthusiastic to do a deal.
So the case can and is made that the tortuous and protracted auction of Seagram’s brands is a symptom of the competitive desires of those who would wish to own them. This is bound to be at least partly true. Where there is fierce competition for acquisitions, there are bound also to be legions of lawyers. Allied Domecq is keen to confound its rivals in a flurry of legal action – and steal a march on Diageo in doing so.
At the heart of this issue lies Captain Morgan, a rum distilled in Puerto Rico. Allied reckons it should be able to deal direct with the Puerto Ricans for control of the brand. Seagram, for its part, makes it abundantly clear that Captain Morgan is exclusively its to sell. Furthermore, the phenomenally successful Absolut vodka brand, ranked seventh in the top 100 brands worldwide, is distributed by Seagram in the US but is controlled by the Swedish Government through a corporate mechanism known as Vin & Sprit, which is doubtless enjoying its elevation to drinks
industry world power.
So it’s not that there is insufficient interest in the acquisition of Seagram’s drinks tray. Quite the reverse. The sharks are circling and, sensing blood, the lawyers are circling the sharks. Little wonder, then, that the auction has become a protracted affair.
But I think there’s another view. In cut-throat markets like this there is a responsibility on the part of the vendor to bring a degree of discipline to the proceedings. This is not a school-masterly point – it happens also to be in the best interests of shareholders, for whom the extraction of not only the best price but also a degree of speed in its extraction must be paramount interests.
A deal that grows as protracted as this will inevitably run the risk of collapse, not least because Seagram is embroiled in the bigger game of a three-way merger with utilities-to-entertainment combine Vivendi and media group Canal Plus of France. Vivendi’s chairman, Jean-Marie Messier, has let it be known that if the machinations of the Seagram drinks deal continue much longer, he’ll ditch the negotiations and, presumably, get on with something more important.
I doubt that this is brinkmanship and I have some sympathy with his attitude. It is not uncommon for an executive with group responsibilities to consider that management time shouldn’t unduly be wasted at subsidiary levels. We’ve been here before – EMI did little recently to resolve the problems at a trading level within the retail group HMV Media, which it controls, while its attentions were focused on the deal it was trying to construct with Time Warner. Given what EMI is now trying to do with Bertelsmann, the nettle at HMV may remain ungrasped.
But should an exasperated Messier put Seagram’s drinks on ice it will be a most unsatisfactory outcome for the vendor and purchasers alike. And it will be something of an indictment of Seagram’s management for failing to execute what should have been a fairly straightforward deal.
I fear the blame for such an outcome will be ascribed to a lack of leadership. And the ascription is bound to be made in the direction of Seagram’s president and chief executive officer, Edgar Bronfman Jr. It has long been murmured in Montreal that Bronfman never had the single-mindedness in the drinks industry that characterised the way in which his father built the company over the best part of half a century.
I wrote here in May 1998, when Seagram acquired music-to-movie colossus PolyGram for £6.3bn, that Bronfman had the opportunity to confound his detractors by building on Seagram’s earlier purchase of Universal to build a truly new-millennial leisure group – a sort of global version of what Virgin was dabbling in with cinemas and vodka.
I said then that there was a suspicion abroad that Bronfman Jr was not so much a chip off the old block as a splinter from the family tree. There were those who said that he had been dazzled by the bright lights of Hollywood and, well, was something of a film-star groupie.
That was, undoubtedly, unfair and cheap gossip. But, ultimately, the responsibility to close a sale lies with the vendor, not the purchaser. And, as the drinks business looks like staying within the Seagram camp for a while, one has to wonder whether the same attention is being invested in this side of the business as has been invested in the glamorous worlds of music and movies.
George Pitcher is a partner of issue management consultancy Luther Pendragon