US blocks Diageo's deal with Pernod

American regulators have blocked Diageo and Pernod Ricard's joint £5.5bn acquisition of the Seagram drinks portfolio, despite winning approval from Canada's anti-trust authorities.

The US Federal Trade Commissionunanimously voted to veto the deal yesterday, citing concerns over Diageo's dominance of the US rum market. Shares in the Smirnoff Vodka to Johnnie Walker whisky group fell 4p to 683p, before the decision was announced.

After the announcement, Diageo said it and Pernod had agreed to hold further talks with the FTC to reach a settlement on the deal. "We're encouraged by the FTC's willingness to have further discussions which we will pursue over the coming weeks," Diageo's chief executive, Paul Walsh, said.

But a deadlocked FTC vote enabled a green light for Diageo's $5.4bn (£3.9bn) sale of its Pillsbury packaged food division to General Mills of the US.

City sources said the FTC was uneasy about Diageo, which makes Malibu white rum, gaining control of Seagram's Captain Morgan brand, a dark rum. Ownership of Captain Morgan and Malibu would give Diageo 26 per cent of the US rum market, creating a duopoly with Bacardi, the market leader, which has a 55 per cent share.

Analysts suggested Diageo, which was yesterday ordered to sell Seagram's Canadian whisky brands, would try to meet FTC approval by divesting another brand. But the FTC had rejected a plan to sell the Seagram Myers rum brand, which has a 2 to 3 per cent market share.

A Diageo spokeswoman said the company was "absolutely fine" about the order from Canada's competition bureau to sell its Gibson's Finest brand of Canadian whisky.