French drinks group Pernod Ricard has offered to buy UK rival Allied Domecq for £7.4bn ($14bn) in what would be one of the industry's biggest takeovers.
Analysts are predicting further rounds of drinks industry mergers
The deal, which would bring together the world's second and third biggest drinks companies, has been approved by Allied's board.
Pernod wants to catch market leader Diageo, cut costs and expand in the US where growth is faster than in Europe.
Allied's brands include Beefeater gin, Stolichnaya vodka and Malibu rum.
The Pernod bid is being made in partnership with US company Fortune Brands.
Shares in Allied rose 3.42% by the end of trading in London, while in Paris Pernod shares added 6.76%.
Pernod's drinks stable includes Chivas Regal scotch, Martell cognac and Jacob's Creek wines; while Fortune owns Jim Beam bourbon.
Pernod plans to hold onto the majority of Allied's brands but will sell some brands, including Sauza tequila and Canadian Club whisky, to Fortune for about £2.8bn in cash.
Gerard Rijk, an analyst at ING in Amsterdam, said that acquiring Allied would give Pernod the size and product range needed to strike better deals with distributors.
"It will fill in some gaps in Pernod's portfolio," he told BBC News. "They are moving to more of a global player from a local player in France."
Mr Rijk expects wine and premium brands of spirits like vodka to be the main drivers of growth going forward, especially in the US and Asia.
Consumers, both young and old, are changing their drinking habits, preferring quality wines and spirits rather than pint after pint of beer, he explained.
"The young still drink ... but the trend is more towards going home and opening a bottle of wine," Mr Rijk said.
Competition steps up
Pernod's offer values each Allied share at 670 pence.
It has bid 545 pence in cash for each Allied share. It is also offering one newly-created Pernod share for every 63 Allied shares held by investors.
World's biggest spirits companies*
Diageo - maker of Smirnoff vodka and Johnnie Walker whisky, 91 million cases
Pernod Ricard - maker of Chivas Regal whisky and Martell cognac, 48 million cases
Allied Domecq - maker of Beefeater gin and Kalhua liqueur, 47 million cases
Bacardi - maker of Bacardi rum and Bombay Sapphire gin, 38 million cases
Fortune Brands - maker of Jim Beam bourbon, 23 million cases
Brown Forman - maker of Jack Daniel's whisky and Southern Comfort, 15 million cases
Vin & Sprit - maker of Absolut vodka, 14 million cases
*Measured in annual sales of 12-bottle cases of spirits. Source: Reuters
Pernod expects the merger will save it as much as 300meuros (£205.5m), while Allied Domecq said that increasing competition had been a key factor.
"Competitive and economic conditions in the first half of 2005 have been tough," said Philip Bowman, chief executive of Allied Domecq.
"Against this backdrop the need for further consolidation in the distilled spirits industry is increasingly apparent."
Allied Domecq said in a separate statement on Thursday that its pre-tax profit rose 7% to £285m in the six months to February compared with the same period a year earlier.
Pernod's move may trigger rival bids from other drinks companies, keen not to be left behind in the latest round of industry consolidation, analysts said.
Other possible bidders for Allied Domecq include Brown Forman, the owner of the Jack Daniel's brand, and US-based Constellation Brands, analysts said.