Allied's rum deal throws Seagram sale into disarray

The $7bn (£4.83bn) auction for the spirits assets of Canada's Seagram was thrown into disarray last night after Allied Domecq apparently secured rights to one of the key brands up for sale.

The $7bn (£4.83bn) auction for the spirits assets of Canada's Seagram was thrown into disarray last night after Allied Domecq apparently secured rights to one of the key brands up for sale.

Seen as a front runner to buy the entire business, Allied's move shocked rival bidders.

The UK group, whose drinks cabinet includes Beefeater gin and Kahlua liqueur, said it had teamed up with Destilería Serralles, the Puerto Rican company which makes Captain Morgan rum on behalf of Seagram. In a joint statement, the two groups revealed that, as part of its existing agreement to supply rum to Seagram, Destilería Serralles has a right of first refusal over any proposed transfer of the Captain Morgan brand.

The announcement continued: "Destilería Serralles has undertaken to exercise this right in the event that a party other than Allied Domecq gains control of the Seagram spirits and wine business. In that event, the agreement between Allied Domecq and Destilería Serralles provides Allied Domecq with the right to acquire the Captain Morgan brand."

If Allied does prevail in the auction, the Puerto Rican company has undertaken not to exercise its right to buy the brand - in effect handing control to Allied Domecq in either case. Allied Domecq will provide financial support for Destilería Serralles if it is required to purchase the Captain Morgan business.

Philip Bowman, chief executive of Allied, said: "What we are doing is to try to get the best position we can to succeed in the auction process."

It was unclear what benefit the tie-up would bring to Destilería Serralles, except to provide it with some certainty about its future business partner. But Mr Bowman said: "They came to us."

On hearing the news of the alliance, Alan Gray, an analyst at ING Charterhouse, said: "That's quite clever. Captain Morgan was the one brand that Diageo was most interested in."

Diageo, the world's biggest spirits company, has teamed up with Pernod Ricard and was hoping to cream off the rum label along with Crown Royal Canadian whisky, whilst handing the rump of the assets to Pernod in order to stop them falling to its arch rival Allied.

Diageo declined to comment yesterday. A spokesman for Pernod said: "It has come as a complete surprise. That is all I can say."

Industry sources said Diageo and Pernod, along with the other joint bidders in the auction, Bacardi and Brown-Foreman, were likely to challenge Seagram's handling of the auction process, since they did not appear to be aware of Destilería Serralles' privileged position with regard to the Captain Morgan brand.

One source said the revelation could mean the entire sale would have to be scrapped and the costs born by Seagram and its financial advisers, Morgan Stanley.