Seagram harbours doubts over Allied deal

Allied Domecq's hopes for a drinks merger with Seagram could be dashed because several senior executives at the Canadian drinks giant harbour grave doubts about the potential deal.

A complete merger of the two group's spirits businesses is still the preferred option for Allied, which sees Seagram as its most logical partner as it strives to forge a new drinks giant to take on the might of Diageo.

Although a merger may still be on the cards, some members of the Seagram camp are understood to be unhappy about giving up control of the spirits business.

One alternative under consideration is a distribution agreement with Seagram. One industry source said: "Allied's spirits merger with Seagram is meeting with some resistance. That does not mean it will not happen but Allied may have to make do with a distribution agreement instead, probably on a country-by-country basis."

Such a move would not generate the sort of cost savings that would result from a full merger, but could lead to substantial benefits for both sides.

Allied is considering involving Bacardi-Martini, the US drinks group, in a distribution deal if it agrees a tie-up with Seagram, according to another source. Together the three drinks groups could provide a real competitive threat to Diageo.

"Everybody wants Bacardi. It is the biggest selling brand in the world and would be an ideal partner for Allied and Seagram," said one drinks analyst.

Allied is also in talks with other drinks giants around the world about a potential merger. However, like Seagram, which is run by the Bronfman clan, most of the biggest groups are family owned, which can complicate negotiations.

If Allied and Seagram do manage to thrash out a deal it would give the combined group huge clout in the worldwide spirits market.

Allied owns Teachers and Ballantine's whisky, Courvoisier cognac and Beefeater gin, which fits well with Seagram's Chivas Regal whisky, Martell cognac and Mumm champagne.

Talks with Seagram are understood to have progressed further than initial discussions. However, sources suggest Allied is still some way from sealing an agreement and a final deal could be months away.

Allied and Seagram have already ruled out a full merger. Seagram is not interested in acquiring Allied's pub and retail interests.

The group is also keen to keep control of its entertainment division, which owns Universal Studios in Hollywood. Goldman Sachs, the US investment bank, is advising Allied on its options.

Andrew Yates