Allied won't demerge

Allied Domecq chairman Sir Christopher Hogg has decided not to split the drinks company into separate spirits and retailing firms, despite pressure from the stock market and City analysts.

The company looked closely at following British Gas and Hanson down the demerger trail but decided the costs would outstrip any possible gains.

Management is expected to reconfirm its commitment to running both divisions when it reveals its full-year results on Tuesday.

Speculation about a possible divorce helped drive Allied's share price to a five-month high of 492p on Friday, even though profits are forecast to fall. Analysts predict it will report pre-exceptional, pre-tax earnings of pounds 560m-pounds 581m, down from pounds 645m in 1995.

The falling profits will be further hit by its retreat from the brewing sector, where it took a pounds 320m loss on the sale of its 50 per cent stake in Carlsberg-Tetley to Bass for pounds 200m last August.

The poor performance will not surprise shareholders, who have suffered Allied's under-performance in its sector for years. The company bought Mexican drinks maker Domecq just before the Peso collapsed at the end of 1994. By one estimate, it undershot the Footsie by 40 per cent in the four years to the end of 1995.

One reason for the market excitement was the appointment last April of Sir Christopher, who previously oversaw the successful demerger of Courtaulds.

The price was also boosted by rumours that Allied might receive a take- over bid from Seagram, the Canadian drinks and entertainment group. But Seagram is still digesting the pounds 3.8bn purchase of Hollywood's MCA film studio by its star-struck chairman, Edgar Bronfman Jr.

Demerger speculation hasbeen rife for at least a year. The split advocated by most City analysts and institutional investors would have created two new publicly listed companies.

The spirits firm would sell brands including Beefeater, Kahlua, Teachers and Canadian Club. The retail operation would have included 4,000 pubs, Victoria Wine off-licences, and the Dunkin' Donuts and Baskin Robbins food franchise chains, both of which are based in the US.