By selling Bushmills to Diageo, Pernod has removed the global powerhouse from the equation as it seeks to close its bid for Allied Domecq, while Diageo at long last has an Irish whiskey brand, reports Ben Cooper. But whatever happens with the bid, Pernod will no longer have things all its own way in the growing Irish whiskey category.

It was something of an irony that the drinks company which owned the most famous Irish export product, Guinness, and the world's best known liqueur brand, also produced in Ireland, lacked an Irish whiskey brand to call its own. But seizing on an opportunity created by Pernod Ricard's £7.5 billion takeover bid for Allied Domecq, Diageo has now rectified this.

In a deal which also includes the conditional purchase of the New Zealand wine producer Montana for £320m, Diageo has acquired the Irish whiskey brand, Bushmills, from Pernod Ricard for £200m. Bushmills is the second biggest selling Irish whiskey brand behind Jameson with around 15% market share and annual sales of just under 500,000 cases.

As has been widely suggested, Diageo's intervention makes a successful outcome for Pernod Ricard in its bid for Allied more likely, and reduces the chances for a counter-bid from Constellation Brands.

It had been reported that Diageo had held preliminary negotiations with Bacardi regarding a possible joint bid for Allied Domecq. But as part of the Bushmills/Montana deal, Diageo has said it will "cease discussions with any third party in connection with any of the assets or businesses currently owned by Allied Domecq". So it is certainly good news for Pernod Ricard. But the acquisition of Bushmills, seems a shrewd move for the world's largest drinks company too, particularly because it is not contingent on Pernod Ricard being successful in its bid for Allied.

By dint of Pernod's dominance of the category, Irish whiskey has been something a yawning gap in Diageo's portfolio. While some considerable way behind Jameson, which has around 47% of the market, Bushmills has strong premium credentials. "It is very good from a portfolio point of view," Matthew Jordan, analyst at investment house, Dredner Kleinwort Wasserstein, told just-drinks. "Bushmills is a very premium-priced Irish whiskey and would be complementary to Diageo's other premium whiskies."

Some analysts argued that this represents a highly agreeable outcome for Pernod Ricard, which has removed Diageo from the equation with regard to Allied without having to part with a major brand.

However, it has been suggested by some that Diageo got exactly the brand it wanted and for £200m got it at a very reasonable price, not least because of its development potential. It is arguable that Bushmills will develop faster when it is no longer the secondary brand to Jameson, and there seems little doubt that within the Diageo stable it will get the necessary marketing and distribution muscle to achieve this. "In the past Pernod Ricard had a virtual monopoly in Irish whiskey and it's possible that Bushmills suffered as the smaller stablemate of Jameson so there is a good chance for Diageo to give a big push to Bushmills," Jordan said.

This point was echoed by Morgan Stanley which said in a research note that it could not argue with the strategy of buying a small brand where value can be added. It will be no surprise to see Bushmills make up ground quickly on its former stablemate, though of course it does have some way to go before seriously challenging Jameson's dominance of the category. Diageo is thought to be budgeting for around 15% year-on-year growth over the next four years.

Paul Walsh, chief executive of Diageo, said: "The acquisition of Bushmills is a particularly pleasing opportunity. This is one of the industry's oldest Irish whiskey brands and gives Diageo, for the first time, an important presence in this growing category."

But Bushmills need not be seen purely in terms of its development potential. It already has a tidy 15% market share, it is a premium brand and it contributed £14m to Pernod Ricard's pre-overhead profits in the last financial year.

The range comprises Bushmills Original, Bushmills Malt aged 10 Year Old, Bushmills Malt aged 16 Year Old, Bushmills Malt aged 21 Year Old and Black Bush, in addition to the travel retail exclusive, Bushmills Select Casks, launched in March of this year. According to Morgan Stanley's estimates, Diageo is expecting a profit contribution from Bushmills of £24m by year four.