Allied Domecq to buy Malibu

February 27, 2002 Posted: 0944 GMT

LONDON (CNN) -- Allied Domecq, the world's second-largest wines and spirits group, agreed to buy rival Diageo's Malibu coconut rum for £560 million ($798 million).

Diageo, the maker of Johnnie Walker whisky and Guinness beer, was forced to sell Malibu as a condition to win regulatory approval for its joint acquisition of Seagram's drinks empire.

France's Pernod Ricard and Diageo paid Vivendi Universal $8.15 billion for Seagram's business.

The U.S. Federal Trade Commission late last year blocked Diageo and Pernod Ricard's takeover, saying if Diageo buys Seagram's Captain Morgan rum and retains Malibu, it and Bacardi would dominate the U.S. rum market.

Analysts had expected the Malibu brand to raise as much as £650 million from the sale.

But Allied -- which makes Ballantine's scotch, Sauza tequila, Beefeater gin and Kahlua liqueur -- and Diageo agreed to end a legal row over the ownership of the Captain Morgan brand. That may have persuaded Diageo to lower the price, Reuters said.

Allied (ALLD) had been contesting the ownership of Captain Morgan in the Puerto Rican courts after striking a deal with rum supplier Destileria Serralles for control of the brand.

"These transactions affect the sale of Malibu, confirm Diageo's ownership of Captain Morgan and secure its long-term rum supply," said Diageo Chief Executive Paul Walsh.

Allied also agreed to buy a premium Californian sparkling wine for £27.5 million. To pay for the deal, Allied plans to sell 150 million shares.                  

Diageo (DGE) shares edged up 0.6 percent to 814 pence, while Allied was little changed at 402 pence in early London trading on Wednesday.