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Allied sells Tetley tea for pounds 190m

Allied Domecq, the spirits distiller, has agreed to sell its Tetley tea business to a management buy-in team led by American entrepreneur Leon Allen for pounds 190m.

The Tetley deal is Mr Allen's second big venture. He made his first fortune when he sold the Del Monte canned fruit and juice business to Royal Foods of South Africa for pounds 370m in December 1992. He had bought Del Monte from RJR Nabisco for pounds 230m two-and-a-half years earlier.

The buy-in team and Tetley's current management will own 20 per cent of the business. The buy-in team, Mr Allen and Roger Price, who was Del Monte's finance director, will pay pounds 500,000, with the existing management paying a similar price. The remainder of the pounds 5m of ordinary share capital will be owned by the institutions. A further pounds 95m will be invested by the Prudential and Schroder in preference shares, and pounds 150m has been provided by banks in the form of loans.

Martin Clarke, a director of Prudential Venture Management, said: "The key to the deal is turning around the United States business, which has not performed very well. There were some strategic errors. We hope to bring the business to market flotation within three to four years. This will be more difficult than the Del Monte business."

The Tetley management team will be backed by Prudential Venture Management and Schroder Ventures. As well as the pounds 190m price tag, the buyers will have to put up a further pounds 60m in working capital, bringing the total cost to pounds 250m.

The deal does not include the sale of Lyons Irish Holdings, Allied's Irish tea business, which has 25 per cent of its shares quoted on the Dublin stock market. However, the new management team wants to negotiate to buy the Irish business for around pounds 50m.

A source close to the talks said: "Because it is partly listed, it was more difficult to do this deal than it was to buy the core Tetley business. But it would be a logical fit."

The sale of Tetley is part of Allied's strategy to sell off non-core businesses. The company wants to concentrate on its distilling and public house, off licence and franchised retailing operations.

Allied said proceeds of the sale would be used to reduce gearing from 63 per cent at last March year-end to 55 per cent today. The company has pounds 1.7bn in loan stock.