Pernod may bid for Allied Domecq

Allied Domecq's well-known brands include Malibu

The world's second-largest drinks company, Allied Domecq, has confirmed it is in talks about a possible takeover by France's Pernod Ricard.

Pernod Ricard, the world's third-largest drinks firm, is working on a bid with US-based Fortune Brands.

"These discussions are at an early stage and there can be no certainty that an offer will ultimately be forthcoming," said Allied Domecq.

Shares in Allied Domecq were up 41.5 pence at 633p at the close on Tuesday.

Takeover dance

We are still in the foothills of what could be quite a long slog Jeremy Batstone, Charles Stanley Stockbrokers Allied Domecq's share price Pernod's share price

Takeover speculation has surrounded Allied Domecq - the maker of Courvoisier cognac, Beefeater gin and Malibu coconut rum - since early 2005.

In February, the Financial Times and The Wall Street Journal reported that Pernod was considering a bid but had yet to make contact with Allied Domecq.

It is not clear how Pernod and Fortune Brands - owner of the Jim Beam brand - would split Allied Domecq between them.

"There will be a lot of regulatory interest in any offer. We are still in the foothills of what could be quite a long slog," said Jeremy Batstone of Charles Stanley Stockbrokers.

But some other analysts thought Allied's brands could be shared between Pernod and Fortune in a way that minimised competition issues.

Expansion plans

There could also be "significant distribution synergies" from the possible takeover, according to stockbrokers Panmure Gordon.

Pernod - famous for the aniseed-flavoured drink of the same name, as well as Chivas Regal scotch, Jameson Irish whisky and Jacob's Creek Australian wine - is keen to expand.

In 2000, it carved up US-based Seagram's drinks business with rival Diageo, with a third going to Pernod and two-thirds to Diageo.

At Tuesday's share prices, Allied Domecq has a value of about £6.9bn ($12.9bn; 10.1bn euros) and Pernod has a value of 7.7bn euros (£5.3bn; $9.9bn).

The world's largest drinks company is UK-based Diageo, which has a value of £22.8bn.