Dunkin' parent in talks with 2 rivals
A deal could spin off food business as separate firm
Allied Domecq PLC, the British parent of Dunkin' Donuts, Baskin-Robbins, and Togo's, yesterday said it is in talks with French beverage group Pernod Ricard SA and Illinois consumer-products company Fortune Brands Inc. about a potential buyout offer.
The news fueled speculation that Dunkin' Brands Inc., Allied Domecq's quick-service restaurant business headquartered in Canton, could be spun off into an independent company through an initial public offering or sold to a private equity firm or rival restaurant company.
Dunkin' Brands is a relatively small portion of Allied Domecq's $5.8 billion business. The company, with brands such as Beefeater gin, Kahlua liqueur, Sauza tequila, and Canadian Club whiskey, is the world's number two distiller, behind Diageo PLC.
''Neither of the two potential acquirers are doing this to get into the restaurant business," said Dennis J. Lombardi, executive vice president of food-service strategies at WD Partners, a Columbus, Ohio, retail design and development firm. ''They are doing it to build volume to compete against Diageo."
Buyout speculation has surrounded the companies since February when it was reported that Pernod Ricard had hired Morgan Stanley to look for acquisitions.
At the time, analysts said, a bid for Allied Domecq would likely value the company at around $10 billion.
Allied chief executive Philip Bowman has stated repeatedly that consolidation in the liquor and spirits industry is inevitable.
Indeed, it would take Allied, Pernod Ricard, and Fortune Brands to combine their liquor brands under one entity to approach Diageo's share of the US market, noted a Legg Mason analyst.
Allied, Pernod, and Fortune Brands all confirmed yesterday they were in discussions but declined to comment further, saying the talks were at an ''early stage" and there could be ''no certainty" that a deal would get done. Allied spokesman Stephen Whitehead and Dunkin' spokeswoman Michele King both declined to say what might happen to the US restaurant business if a deal were reached.
Food-industry consultants laid out four possible scenarios:
The acquiring companies could hold on to Dunkin' Brands, running it as a separate entity as Allied has since buying Baskin-Robbins, Dunkin' Donuts, and Togo's in the 1970s and 1990s.
They could spin it off into an independent company through an IPO as beverage maker PepsiCo. did when it created Yum! Brands Inc., which operates KFC, Pizza Hut, and Taco Bell.
They could sell it to a private equity firm as Diageo did when it sold Burger King to an investment group comprised of Texas Pacific Group, Boston's Bain Capital, and Goldman Sachs Capital Partners.
Or they could sell the fast-food business to another restaurant company.
The consultants said it seemed most likely that the acquirers would spin the company off, either through an IPO or by selling it to a private equity firm. The money they would earn from an IPO or sale would help offset the cost of the rest of the acquisition. Dunkin' Brands chief executive, Jon L. Luther, has had experience at a publicly traded company when he was president of Popeyes Chicken & Biscuits, a division of AFC Enterprises Inc.
''It wouldn't surprise me if that's part of their strategy," Lombardi said.
The Dunkin' Donuts brand would be the crown jewel of an independent company consisting of the coffee-and-doughnut franchise, ice cream shop Baskin-Robbins, and sandwich chain Togo's.
Of the $4.8 billion the restaurant business logged in sales, $3.6 billion came from the Dunkin' chain alone.
Because the chains are franchises, Allied Domecq only receives a small portion of those sales.
With new offerings from espresso drinks to frozen lattes, Dunkin' has held its own in the fast-growing coffee market with 4,400 locations nationwide.
Though sales numbers weren't available for 2004, consultants said Dunkin' was the only one of the three chains to show sales growth in 2003.
Baskin's sales declined 6.6 percent that year and Togo's dropped 5.7 percent while Dunkin's grew 11 percent, said Ron Paul, president of Chicago research and consulting firm Technomic Inc.
Naomi Aoki can be reached at naoki@globe.com. Globe wire services contributed to this report.
