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Constellation drops bid for Allied Domecq

Published:  23 July, 2008

The consortium headed by Constellation Brands and Brown Forman has abandoned its attempt to take over Allied Domecq. City analysts believe this leaves the way open for Pernod Ricard's recommended 7.4 billion offer in conjunction with Fortune Brands for the UK drinks giant to proceed without further challenge.

Richard Sands, chairman and chief executive of Constellation, said he would not proceed with a bid because 'careful consideration and evaluation of the details following due diligence did not identify sufficient value for submitting an offer'.

However, City sources

believe that the Constellation consortium had indicated to Allied that it was willing to pay up to 720p per share, compared with Pernod Ricard's offer, which is valued at 690p. Discussions broke down when Allied insisted that its shareholders should be informed of them. Constellation felt that announcing that detailed talks were taking place would make

it impossible to resolve outstanding issues.

A key stumbling block is said to have been the valuation of Allied's World Wines business, which Constellation intended to spin off separately on the stock market with the shares being retained by Allied's existing investors. Constellation valued the wines arm at 1.9 billion compared with Allied's valuation of about 1.2 billion.

Allied and its advisers said Constellation's high valuation would put its shareholders at a disadvantage in the context of the overall offer.

City analysts believe that Pernod Ricard's offer for Allied will now proceed unchallenged, especially as it is backed by Diageo, the world's largest drinks group. Diageo has agreed to buy the bulk of Allied's Montana wine interests in New Zealand from Pernod Ricard should the bid succeed. As part of that deal, Diageo has also agreed not to support a rival offer for Allied.

The European Commission is due to rule today (24 June) on any competition issues created by Pernod Ricard's bid. The offer will then go to votes of Pernod Ricard's shareholders on 30 June and Allied's investors on 4 July. In July, the US Federal Trade Commission will rule on Fortune's participation in the bid.

City sources believe that the process is now a formality and that ownership of Allied Domecq will pass to Pernod Ricard and Fortune some time in August.