The UK-based spirits and wine producer Allied Domecq has raised its stake in the Australian winemaker Peter Lehmann Wines, taking its holding to 14.5%.

On the news Peter Lehmann Wines share price increased almost 12% to $A3.20.

A further purchase by Allied would require Foreign Investment Review Board approval, increasing speculation that Allied is looking to acquire the company outright. However, a hostile takeover of Peter Lehmann Wines would be difficult for Allied, with a large minority of the company's stock controlled by the Lehmann family, and another significant amount held by shareholders loyal to the family.

A more likely scenario may see the two groups link up in some kind of distribution arrangement.

Speaking to the Australian press Allied Domecq's corporate affairs director, Stephen Whitehead, did not elaborate on Allied's long term intentions saying only that the company was "comfortable to continue to acquire shares at a price which represents value to our shareholders".

"We believe that a close working relationship between Allied Domecq and Peter Lehmann Wines could improve their profitability, primarily through distribution arrangements most notably in the UK," Whitehead said. "The Allied Domecq wine strategy is delivering growth, as revealed at our interims, and distribution alignment in selective markets with PLW would deliver useful synergies for PLW and help them overcome some of their short-term performance issues."

Manager director of Australia's Peter Lehmann Wines, Doug Lehmann, said the move by Allied Domecq was a bit of a mystery. "We're a little in the dark," he said

Lehmann said there had been no contact with the company since it increased its stake to 10.6% in May 2001.

Allied bought 4.5% of the group in February 2002. It doubled its stake in May last year.

Allied's move came on the same day as Peter Lehmann issued its second profit warning in five weeks.