The race for Seagram's spirits seems to have boiled down to a two horse race between Allied Domecq and Diageo/Pernod Ricard. But as Dave Broom reports there are considerable inconsistencies in the rationale for a merger between Seagram and either of its two suitors, especially in the brown spirits portfolio.

Seagram's announcement that it is finally pulling out of drinks and concentrating its attention on the world of entertainment and communications has, inevitably, resulted in considerable speculation as to who will pick up its spirits portfolio. Ever since Diageo appeared from the merging of Guinness and GrandMet the drinks world has been double-guessing when a similar sized rival would appear, a question which ultimately boiled down to who would merge with Allied Domecq.

Now it would appears Allied may not need a to merge to rival Diageo if it manages to snap up Seagram's portfolio. But that's a big if, given that Diageo has stated that it too would like a piece of the action and that it and a secret partner (widely believed to be Bacardi) would be bidding for the brands.

The Diageo move smacks of a spoiling tactic. Allied needs the bulk of the Seagram portfolio to offer a credible challenge to Diageo's dominant position, Diageo would like to see it split up. While it may be interested in the Captain Morgan rum brands, it is more likely to lust after Seagram's prestige sparkling, fortified and still wine portfolio, though with Pernod-Ricard also involved in global wine grands through Orlando the division may not be quite so clear cut. There are few other spirit brands that it would want or, more significantly, be allowed to own.

Given that Diageo had to sell Dewar's to please the US Monopolies Board it is impossible to imagine it being allowed to acquire Chivas, The Glenlivet and Glen Grant or add any more plants to its to its 27-strong collection of distilleries.

Equally it's unlikely to be allowed to grab Martell given its stake in Hennessy, while the fact that it only sold its US distilleries last year means it's unlikely to want Four Roses bourbon or the Canadian whisky brands such as Crown Royal.

Pernod-Ricard is keen to increase its whisky portfolio, and though it is currently performing strongly it is noticeable that the firm lacks a major premium blended Scotch. Adding Chivas to a range that includes Jameson, Bushmills and Wild Turkey would make it a serious world player, while the addition of Seagram's nine Scotch distilleries would give it access to fillings. The Glenlivet (the world's No3 malt) would be an excellent partner for the fast-growing Aberlour. Crown Royal would also be a good fit.

What of Allied though? Initially it seems a perfect fit to Seagram. However, Canadian authorities would undoubtedly be reluctant to have one firm owning Crown Royal and Canadian Club, while anyone owning Courvoisier and Martell may run into competition problems.

In Scotch terms, Allied can feel more comfortable. It would be surprising if there was to be opposition to Allied adding Chivas, The Glenlivet and Glen Grant to its existing Scotch portfolio which includes Ballantine's, Teacher's and Laphroaig because this would only give it equal punching weight against Diageo's Johnnie Walker and J&B.

However acquiring Seagram's Scotch portfolio would bring problems of another nature. There is a real possibility that Allied will take the brands and close most of the Seagram distilleries. Seagram slashed whisky production back by 40% last year and closed one of its plants (Glen Keith) because of oversupply. Given that Allied has cut its own production targets significantly and has a number of its own malt plants in mothballs there is every likelihood that the nine-strong Seagram bunch is surplus to Allied's needs. "Allied doesn't need distilleries, it needs brands," said one analyst.

There are a number of other possible outcomes. If the portfolio is broken up, Chivas may be sold as a package with a number of key distilleries, while The Glenlivet and Glen Grant are sold as separate brands. That could bring other players into the frame. Pernod-Ricard and Brown-Forman are both known to be keen to expand their ranges. Brown-Forman was only just pipped at the post for Dewar's and recently took a large stake in Glenmorangie; while Pernod-Ricard's whisky selection is performing strongly. Smaller players such as Inver House may be interested in picking up distilleries (and keeping them open) if they come on the market.

You name the permutation and there's a logic to it. There's even an outside chance that Charles Bronfman may raise the necessary cash to lever a family buy-back. Until then, Speyside insiders talk of a "devastated" Seagram workforce. "Experienced operators are being laid off and replaced with chemists and engineers, and then rehired to train their replacements," said one source. "The guys just don't know if they are coming or going." Sadly that Damoclean sword looks set to continue hanging over them for a few months yet.

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