Optimism for US Spirits Recovery is the Real Message Behind PRNDY-BFB Merger Talks. BFB+, SAM+, STZ+, DEO+. Happier Hours Ahead.
Earlier today, Brown Forman confirmed widely reported discussions with Pernod Ricard on what it describes as akin to a merger of equals. Since the main impact would be a 74% expansion of Pernod Ricard’s US exposure, our takeaway is validation for optimism on the recovery of the US spirits and alcohol market broadly.
The most meaningful aspect of a merger with BFB would be a 74% increase in PRNDY’s US exposure. The most material impact of a merger with Pernod would be closing the gap (pro forma $4.2 bn) with Diageo’s $8 bn in sales (90%+ spirits) in the US. While BFB has more than half of its sales overseas, its $1.8 bn in US sales would increase Pernod’s pro forma U.S. exposure to 26% from 19%. Pernod has repeatedly emphasized the importance of U.S. product market share — this potential deal would help enormously.
While characterized by Brown Forman as “akin to a merger of equals” — Pernod’s sales ($12.6 bn) are triple those Brown Forman ($3.98 bn). While BFB’s Class A shares with full voting power assure that the Brown family will have outsized say in any post-merger plans, this is by no means a merger for equals in the strategic sense. This would be a larger, more global company buying a fantastic brand portfolio led by Jack Daniels for its strong US-centric presence and heritage.
We think Brown Forman’s recent struggles are emblematic temporary shocks to the market structure of US Spirits, not a paradigm shift. Specifically, an overdeveloped high end, especially in tequila (evident in BFB’s -7% LFL FYTD), cannibalization from canned cocktail growth (BFB +6% LFL YTD) & shifting promotional behavior due largely to excess channel inventories are headwinds that eventually should pass.
We share Pernod’s implied view – our outlook for the U.S. alcohol market in early 2026 is optimistic. We see modest signs of improvement evident from late 2025, stable occasions, consumers preferring more mid-tier premium brands, and retailers featuring them more often.
In our view, recent panic about generational drinking changes are overblown. As noted by Diageo in January, drinking occasions don’t appear to be declining, but consumers – especially those aged 35–49 – are drinking differently. They are buying less in bulk but opting for higher-quality products. Retailers are adapting by allocating more prime shelf space to higher-margin products rather than focusing on volumetric best-sellers. We see a gradual path to better days ahead (BFB+, SAM+, STZ+, DEO+).