US regulators have moved to block the proposed £5.7bn sale of Seagram's wine and spirits business to Diageo and Pernod Ricard.
The Federal Trade Commission (FTC) issued a statement yesterday saying the deal would illegally reduce competition in the American rum sector, leaving only two large vendors.
The deal was cleared by both the European and Canadian authorities. But the FTC concluded unanimously that the combination of Seagram's Captain Morgan (pictured) and Diageo's Malibu, the second and third largest brands in the US, would create a duopoly with Bacardi, the market leader. The next largest rum seller in America had only a two per cent market share. No sizeable rum brand has been introduced to the US market for 18 years.
The FTC issued a preliminary injunction without filing a formal complaint. It is willing to have further discussions and both Diageo and Pernod Ricard believe a solution can be found.
Diageo chief executive Paul Walsh said he was encouraged by the FTC's willingness to hold further talks.
Patrick Ricard, chairman and chief executive of Pernod Ricard said "We are disappointed by the result but confident that an appropriate solution can be found."
It is understood Diageo would look to dispose of Malibu in favour of Captain Morgan to save the deal. Allied Domecq would be the most likely buyer for Malibu.
The decision means that Barcardi would no longer have to worry about facing a consolidated competitor.
At the same time the FTC allowed Diageo's £7.25bn deal to sell Pillsbury to General Mills of the US to go forward.
Related stories:
Brands change hands after acquisition of Seagram Drinks (26 March 2001)
Seagram sales face delay (05 March 2001)
Two bidders left in battle for Seagram (09 October 2000)
Allied Domecq targets Seagram (26 June 2000)