The announcement that Diageo and Pernod Ricard are to make a joint bid for Seagram's wines and spirits division, has installed the Franco/Anglo consortium as favourites to snap up the Canadian drinks concern…but only just.

One analyst told "It is a no lose situation for Diageo. The Diageo/Pernod consortium is favourite because they have capital and they have got round the regulatory problems."

However another city analyst continued to back Allied Domecq's chance of buying the Seagram's drinks business in its entirety. He said: "I would still favour Allied because of the cost savings. Also a single purchaser is stronger than a consortium bid where discussions with your business partner would slow things down."

He also believed Pernod Ricard may have bitten more off than it can chew. "A $7.5 billion acquisition may look a mouthful for Allied, but it is more of a mouthful for Pernod Ricard to buy the rest of the group if Diageo is only really interested in Captain Morgan and Crown Royal."

Pernod Ricard has no overlap in the US so the cost savings will be minimal but the French group is keen to break into the US market and would love to overtake Allied as number two in the world.

The announcement has taken the city by surprise as it was widely believed that Diageo was in talks with the Bermudan-based Bacardi. However, rumours began circulating at the weekend that an Anglo-French deal was on the cards.

Further details of how Seagram might be broken between the two were not forthcoming.

However a Pernod Ricard spokesman told just-drinks: "This is the best possible deal for us in terms of strategic options. Our priorities compliment each other. For example we will be focusing on Scotch whisky and they will not. It is also good for the credibility of our bid to be with the biggest player in the market. The terms of the deal our subject to a confidentiality agreement, all I can say is that when the sale begins we will be ready."

It is known that Diageo will be interested in Captain Morgan rum and the Canadian whiskey Crown Royal. However, as reported in just-drinks last month, Diageo will also be keen to get hold of Seagram's portfolio of wines, which include, the Sterling Wines portfolio, Tessera, The Monteray Vineyard and the sparkling wine Mumm Cuvee Napa. It is also the distributor of Mumm and Perrier-Jouet Champagnes.

"Paul Walsh is quite serious about being acquisitive particularly in wines. He is keen to redress the balance between wine and spirits and beer. I think he is keen for Diageo to be the world leading beverage company and that is not the same thing as being the world leading spirits company," said one industry source.

The Pernod/Diageo bid also throws open the door for other spirits companies to benefit from the Seagram sell-off. The analyst said: "One thing you need to consider is that Pernod might not be able to afford all that Diageo doesn't want therefore there may be more brands for sale."

Companies such as Remy-Cointreau and Campari, both of which have stated their interest in picking up brands from the spin -off, would be prime candidates to benefit from this situation.

Although Allied was initially favourite to clinch the Seagram deal, the race for the business may push the price beyond its reach. Allied will probably need a rights issue and some analysts believe that the price tag of between $7bn and $9bn, currently being suggested for the Seagram portfolio, may be out of its reach.

Moreover, industry experts believe Allied and Diageo/Pernod could be joined at the negotiating table by at least two other parties.

"I would be surprised if there weren't more. One of the issues is whether the Bronfman family puts in a bid themselves and that is unresolved. And then there is obviously Brown Forman and Bacardi out there too, its speculation but it is not unthinkable that they might come out together," said one.

At present there is no official timescale as to when the auction process will begin. But the expert said: "The Seagram Vivendi merger has US regulatory approval as of yesterday and the bankers who are representing Seagram on that deal are saying that they expect the auction to start in the next few weeks."

A Diageo spokeswoman told "Seagram's disposal process has not formally begun yet - we have formed this agreement to ensure that we are ready to participate and to maximise our chances of success."

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