Allied Domecq last night accepted Pernod Ricard's offer to buy the UK-based drinks giant. The bid values each Allied share at 670 pence, with the existing share capital being worth around GBP7.4bn.

The deal, which was announced alongside Allied's half-year results this morning, creates the world's biggest spirits company outside the US. Fortune Brands has agreed to buy some Allied brands from Pernod.

Pernod will retain the majority of the Allied business, including many of the core spirits brands such as Ballantine's, Beefeater, Kahlúa, Malibu, Stolichnaya and Tia Maria, and premium wines such as Montana, Mumm (and Mumm Cuvée Napa), Perrier Jouët and Campo Viejo. Fortune will buy Allied's Sauza, Maker's Mark, Courvoisier and Canadian Club spirits brands, super-premium California wines, including the Clos du Bois brand, Allied's distribution assets in the UK, Germany and Spain and for US wine, and Pernod's Larios brand for around GBP2.8bn in cash.

The French drinks company has estimated annual pre-tax cost synergies of approximately €300m from the deal. Speaking on UK radio this morning, Pernod's joint managing director, Richard Burrows, warned that the deal would result in some job losses, but declined to specify exact numbers.

In a statement released this morning, Patrick Ricard, chairman and CEO of Pernod, said: "I would like to say how excited we are by this transaction, which is a new major strategic step in Pernod Ricard's development. I believe that Allied Domecq's magnificent portfolio of brands has a great future within our group. We at Pernod Ricard look forward to working with the employees of Allied Domecq to realise the strong potential that exists to grow our enlarged business."

Norm Wesley, chairman and CEO of Fortune Brands, added: "We see the purchase of these exceptional, complementary brands as an excellent high-return growth opportunity that will fill gaps in our portfolio and take our very profitable spirits and wine business to the next level. These brands and distribution assets will significantly enhance our spirits and wine business by elevating our entire portfolio, supporting growth of our existing brands, expanding our scale in key markets and creating valuable distribution efficiencies."

In a separate statement, also issued this morning, Allied conceded that the possibility of an offer had been in the public domain for some time. "During this time the board of Allied Domecq has considered a number of different options," the company said. "The board believes that, taking account of these factors, the offer by Pernod Ricard represents an attractive proposal for delivering value to Allied Domecq shareholders."

Allied's chief executive, Philip Bowman, added: "This is a very different business from the one I joined some six years ago.  We have a substantially stronger portfolio with access to growth categories and markets, better margins, more efficient use of resources and of course significantly stronger cash flows.

"Our interim results announced today demonstrate our eleventh successive half-year of growth with constant currency earnings and interim dividend per share up by over 10%. In the last five years, the market capitalisation has almost doubled, increasing by GBP3.6bn.

"Competitive and economic conditions in the first half of 2005 have been tough but we delivered a robust performance driven by wine and Dunkin' Brands. Against this backdrop the need for further consolidation in the distilled spirits industry is increasingly apparent. The offer for the business from Pernod Ricard provides Allied Domecq shareholders with the ability to crystallise value and an opportunity to continue to participate in the future success of many of our brands within the enlarged Pernod Ricard business."

Under the terms of the offer, Allied shareholders will receive 545 pence in cash and
0.0158 of a New Pernod share for every Allied share. Approximately 80% of the consideration is in the form of cash.