Diageo has chosen a side in the battle for Allied Domecq.

Following comments last week by CEO Paul Walsh - that the company was prepared to side with either Pernod Ricard or the Constellation-led consortium in the race to acquire the Bristol-based company - the drinks giant has decided to run with Pernod. Diageo is also set to buy one of Pernod's spirits brands.

In a statement issued this afternoon (6 June), Diageo confirmed that it has "undertaken to cease discussions with any third party in connection with any of the assets or businesses currently owned by Allied and not to (and to procure that none of its concert parties will) acquire or dispose of any shares in Allied Domecq without Pernod's consent."

At the same time, Diageo said that it has entered into an agreement with Pernod to purchase its Irish whiskey brand, Bushmills, for approximately GBP200m. "The acquisition of Bushmills represents an important opportunity for Diageo as Irish whiskey is a category in which, currently, Diageo does not participate," the company said in the statement. "Diageo expects that the proposed acquisition will be economic profit positive during the fourth full year after completion using a 9% weighted average cost of capital."

In addition Pernod has granted Diageo an exclusive no cost option to purchase Allied's Montana wine business with the exception of the Corbans, Stoneleigh and Church Road wine brands for 11 x 2004 contribution after marketing expenditure (CAMP). The purchase price, of approximately GBP320m, may be adjusted to reflect information relating to the Montana CAMP, which will be available following completion of the acquisition of Allied by Pernod. Diageo said that it will exercise the option subject to determining that the acquisition of Montana can achieve appropriate growth and returns for shareholders.

In the statement, Paul Walsh said: "Since 2000, Diageo has built a focused, premium drinks company which is now a world leader. The business has grown organically and through targeted acquisitions. The acquisition of Bushmills and the option we have to acquire Montana continues that strategy.

"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. Montana is one of the leading New Zealand wine brands and the number one New Zealand export brand. The option gives us the opportunity to establish whether it could deliver the same growth that we have seen from our existing wine business."

In a seperate statement issued by Pernod, Patrick Ricard, the French company's chairman and CEO, said: "I am very pleased with this agreement which is good for the two companies and underpins the confidence which both we and Diageo have in the success of Pernod Ricard's recommended offer for Allied Domecq."