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Buffett sips at Domecq
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May 18, 1999: 6:46 a.m. ET
Famed investment guru builds stake in beverage giant Allied Domecq
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LONDON (CNNfn) - Warren Buffet, the legendary Sage of Omaha, now has something a little stronger to go with his cherry Coke after buying a significant holding in London-listed spirits and beverages giant Allied Domecq.
Ending a frenzy of speculation among U.K. investors, Allied revealed Tuesday that Buffett had bought a 2.2 percent stake - valued at about 125 million pounds ($202 million) - sending Allied shares soaring almost 5 percent to 554 pence, before they retreated slightly by late morning.
During a quick visit to London in April Buffett revealed he was building a holding in a major U.K. company, but refused to say which one until he had amassed a 3 percent stake, the level at which investors have to disclose holdings to stock regulators.
A flurry of speculation resulted, with suspicion centering on troubled retail giant Marks & Spencer (MKS).
Allied Domecq refused to comment on Buffett's move Tuesday, citing standard company policy.
But a company insider said he was pleased that Buffett had singled out the firm for Berkshire's well-padded portfolio, which includes the blue chip likes of American Express (AXP), Coca-Cola (KO) and Walt Disney (DIS).
Allied appears to gel well with Buffett's traditional investment theories: he looks for strong brands that are out of fashion and buys for the long term. Allied has several top ranking spirits brands, such as Ballantine's whisky, Beefeater gin and Sauza tequila.
Last year, Sauza saw a 23 percent leap in total U.S. sales, while another best-selling spirit, Kahlua, posted a 3 percent sales jump.
Buffett's long-term intentions toward Allied Domecq, however, remain unclear.
The Allied insider said Tuesday the company had no plans to change its business strategy now that one of the world's most closely-watched investment gurus has joined its shareholder ranks.
Allied, is currently in talks with Whitbread (WTB) over the possible sale of its 3,500 U.K. pub division for $3.6 billion. Allied is also said to be negotiating the disposal of its U.K. retail businesses, excluding the Dunkin Donuts and Baskin Robbins chains.
Allied's shares have been extremely poor performers on the London stock exchange in recent years, and the management team has been heavily criticized by investors. The strong performance of chief rival Diageo (DGE) has highlighted Allied's poor showing.
The recent announcement the company was selling its pubs and retail division helped the stock price arrest its slide, however.
Nonetheless, one London-based analyst said Tuesday he was a bit mystified at Buffett's choice of Allied. The analyst, who wished to remain unidentified, suggested Buffett may be counting on an eventual merger between Allied and Canadian drinks and entertainment group Seagram (VO), a perennial subject of speculation in the investment community.
Last December, Seagram called off talks with Allied, saying it had decided to go it alone after seeing an improvement in wine and spirits performance.
"I can only assume that (Buffett) has thought that at some point in the future Allied will do a deal with Seagram," the analyst said.
Allied management searched its shareholder register to discover the Berkshire Hathaway holding on April 19 was 22.8 million shares.
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