Allied Domecq is reported to be tendering a bid of £1 billion for the Australian wine giant Southcorp, as a fall back measure, should it lose out in the race for Seagram's spirits and wine business.

Philip Bowman is thought to be confidant that Allied will buy Seagram's portfolio and close the gap on drinks rival Diageo, but is preparing the alternative if Diageo wins the Seagram jewel.

A spokeswoman for Allied would neither confirm nor deny the reports and told just-drinks: "We continue to look at everything in the market, and that is all I can say at the moment."

One Australian analyst told just-drinks that the market might think the £1bn bid too low. He believed that a value of £1.2bn (A$3bn), or $5 a share, would be more realistic.

Southcorp is currently trading at $4.65, a share a rise today of 16c, up 4%. Australian drinks companies are relatively cheap propositions for overseas bidders due the exchange rate.

If Allied missed out on Seagram, Southcorp would be a quick way to gain size because the Australian produces the equivalent of 18m cases of wine annually, including 12m cases of bottled wine.

However, Southcorp executive manager, corporate affairs, Glen Cunningham said Southcorp had received no formal approach from Allied Domecq or any other company.

Southcorp CEO Graham Kraehe and Southcorp Wines CEO Tom Park have recently returned from California. The trip raised speculation the two were on a mission to seek out joint ventures and acquisitions in the US, but Southcorp said the trip was a familiarisation visit for Parks, who has only been in the job five months.

Meanwhile, Pernod Ricard, Diageo's partner in the race for Seagram, may be close to strengthening its New World wine portfolio. Orlando Wyndham, Pernod's Australian wine arm is strongly tipped by industry and financial sources as the front-runner for New Zealand's Corbans, owned by the DB Group.

However, one former front-runner for the business Foster's, which owns Mildara Blass, is unlikely to bid at all. Its CEO Ted Kunkel said yesterday in a television interview that the company was unlikely to make any other substantial acquisitions within the next 12 months. The time would be spent instead, he said, bedding down the recently acquired US company Beringer Wines.