Diageo 'mulls £700m Malibu sale'

Malibu: could be sold off so Diageo can land Captain Morgan

Drinks giant Diageo is willing to sell its Malibu coconut rum brand - worth an estimated $1.1bn (£700m) - to push through its joint purchase of Seagram's wine and spirit empire, sources say.

It would make sense for Pernod to bid for Malibu. It is more important to Pernod than to Diageo that the Seagram deal goes through

Dave Likston, fund manager, Gerrard

The speculation comes after Diageo and French group Pernod Ricard's $8bn bid to buy the Canadian group's drinks portfolio was blocked by US competition authorities.

The Federal Trade Commission (FTC) was concerned that the deal would reduce competition in the US rum market and leading to higher prices for consumers.

Sources close to Diageo say the company is considering the sale of Malibu to satisfy the regulators.

A Diageo spokeswoman said the company was "aware that the issue is within the rum category and is considering all options as long as it's in the shareholders main interest."

Potential buyers for Malibu are tipped to be Pernod itself or Allied Domecq, which is second to Diageo in the word spirits' stakes, with less than half its market share.

Sale would 'make sense'

David Liston, analyst at fund manager Gerrard said: "It would make sense for Pernod to bid for Malibu.

"It is more important to Pernod than to Diageo that the Seagram deal goes through."

He said the Malibu brand could be sold for around $1.1bn.

However, David Pope, analyst at Brewin Dolphin, said a price was more likely to be around the $900m mark.

Analysts said Malibu was more likely to be put up for sale than the premium Captain Morgan label, which Diageo's main object in going after the Seagram portfolio.

Ownership dispute

Under the proposed deal, Diageo would buy 61% of Seagram's alcohol assets, including Myers rums, 7 Crown American whiskey and Sterling Vineyards wines from owner Vivendi Universal, as well as hoping to claim Captain Morgan.

We are encouraged by the FTC's willingness to have further discussions which we will pursue over the next few weeks

Paul Walsh, Diageo chief executive

The ownership of Captain Morgan however is currently in dispute, as Allied Domecq has said it had secured the rights to the brand through an alliance with Puerto Rican manufacturer Destileria Serralles.

Pernod plans to buy the remainder of the Seagram business, including Chivas Regal, Glen Grant, Royal Salute and Glenlivet whiskies, Seagram's Extra Dry gin and Martell cognac, to add to its Wild Turkey bourbon and Havana Club rum.

Diageo upbeat

Diageo, which also makes Johnnie Walker scotch, Smirnoff vodka and Guinness, was upbeat following the FTC decision.

It said the regulator, together with itself and Pernod Ricard, had agreed to further discussions in an effort to reach a settlement.

Paul Walsh, Diageo's chief executive, said: "We are encouraged by the FTC's willingness to have further discussions which we will pursue over the next few weeks."

A Pernod spokeswoman said the group was confident a successful conclusion would be reached.

"This is non other than a delay. We remain confident of finding a solution."

In the City, Diageo shares closed down 3p at 680.