Allied Domecq opens talks with US bidders over break-up bid

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The Independent Online

The bidding war for the drinks giant Allied Domecq broke out in earnest last night when Constellation Brands, the world's largest wine group, announced it had made a formal approach to the company.

The bidding war for the drinks giant Allied Domecq broke out in earnest last night when Constellation Brands, the world's largest wine group, announced it had made a formal approach to the company.

Constellation has teamed up with Brown Forman, the maker of Jack Daniels bourbon, and two private equity groups, Lion Capital, formerly known as Hicks Muse Europe, and Blackstone to scupper the £7.4bn bid tabled last week by the French drinks group Pernod Ricard.

Diageo also appeared to be gearing up for a possible entry to the bidding ring, announcing yesterday it was evaluating "takeover opportunities" as part of a refinancing exercise.

The Constellation consortium is set to table an all-cash bid that could trump Pernod's offer in the eyes of shareholders, although there were few details last night on what price it would offer, or how its bid would be structured.

"At this stage it is too early to ascertain whether this preliminary approach will lead to an offer for Allied Domecq," a statement from Allied said yesterday.

But a source close to the discussions said: "Constellation has told the Allied board that it is very serious about making an offer and that it has a plan in place."

The Allied board will be opening its books to Constellation to conduct due diligence. Pernod has offered 670p a share, 80 per cent in cash and 20 per cent in Pernod shares, and has secured a recommendation from the board.

But investors in Allied are reluctant to accept French paper and have indicated that 700p would be a knock-out offer. Shares in Allied are expected to soar today in anticipation of an all-cash offer coming forward.

Pernod dismissed last night the prospect of a counter-bid. A spokesman said: "Ours is the only offer on the table. It has been recommended and is very good for the future of the brands and the business."

Earlier this month, The Independent revealed that Lion Capital, formerly Hick Muse Europe, was poised to enter the bidding war for Allied after it hired Javier Ferran, a former Bacardi executive with more than 20 years' experience in the drinks industry.

The private equity fund specialises in consumer goods and used to own the Mumm and Perrier Jouët champagne brands owned by Allied. Constellation confirmed this week it was considering its options over a possible bid for Allied and hired NM Rothschild in London to begin frantic talks to secure a partner.

With an already substantial wine portfolio, it is thought to be interested in Allied's spirits brands.

Diageo, the world's biggest drinks company, yesterday also raised the prospect of becoming involved in the auction of Allied, saying it was evaluating opportunities to pursue acquisitions.

It announced a $900m (£474m) bond issue as part of a refinancing but revealed it had also told credit rating agencies that it was in the market for deals.

"The pace of consolidation activity in the total beverage alcohol sector is increasing - with the offer by Pernod Ricard for Allied Domecq as the latest example. In this environment, Diageo expects to continue to evaluate opportunities to make acquisitions that complement its existing premium drinks brands and create shareholder value," Diageo said in a statement.

Diageo faces too many competition issues to play a lead role in the break up of Allied. But it would be free to buy some or all of Allied's wine assets and one or two spirits brands.

Bacardi has also been tipped as a rival bidder and was seen as a possible partner for Constellation, but its complex share ownership structure, which is dominated by family holdings, has hampered its involvement.

Key to Constellation's bid will be how much in the way of cost savings it can squeeze from Allied. Pernod has anticipated £300m of cost savings, but a private equity deal will have to strip out even more from the company. Should Allied drop its recommendation of the Pernod offer within six months, it will have to pay the French business £37m.