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By Savyata Mishra
April 29 (Reuters) - Shares of Brown-Forman fell nearly 6% in premarket trading on Wednesday after the Jack Daniel’s whiskey maker and France’s Pernod Ricard scrapped their merger talks, turning investor focus back to a tougher demand environment.
The discussions, first disclosed in March, ended by mutual agreement after the companies failed to reach mutually acceptable terms, they said on Tuesday.
A tie-up would have created a strong challenger to global spirits leader Diageo and given the combined group greater leverage in the crucial U.S. market.
Pernod said in an internal memo seen by Reuters that the potential for the merger was real, but the necessary conditions to continue the project were not met.
"We felt that momentum toward a deal was stronger vs. historical speculation given the challenging operating environment and strategic rationale of combining with (Pernod)..." J.P.Morgan analysts said.
The brokerage downgraded the stock to ’underperform’ from ’neutral’ and cut price target to $23 from $27.
Brown‑Forman, whose shares were trading at $26.33 before the bell, said it would focus on its strategic and operational priorities, including expanding its geographic footprint.
Fireball maker Sazerac, which has offered about $15 billion for Brown‑Forman, according to a Reuters report, remains a potential bidder, though analysts see a deal with the Goldring family-controlled group as less likely.
"With less strategic fit, potentially more burdensome regulatory process, and likely less control vs. a (Pernod Ricard) deal, we view a takeover by Sazerac as lower probability," J.P.Morgan analyst Drew Levine said.
Brown-Forman’s stock has lost about 19% of its value in the past 12 months amid slowing spirits demand and cost pressures, though shares surged about 18% since the news of deal talks emerged.
