It seems that a few other parties besides Pernod and Fortune Brands (NYSE:FO) are interested in the brands on the shelf at Allied Domecq (NYSE:AED). A couple of weeks ago, fellow Fool Rich Duprey had wondered who Constellation Brands' (NYSE:STZ) dancing partner would be, and now we have an answer. It's Brown-Forman (NYSE:BFB) and two private equity funds.

The beautiful thing about the beverage industry is the robust cash flows. You see it not only in the alcohol beverage industry, but also in Inside Value selection Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP). It's also worth noting that almost all companies in the alcohol beverage industry, with the notable exception of Constellation Brands, keep Income Investors happy with regular increases in their dividend payments.

But, perhaps the most interesting thing about the battle for Allied Domecq is that some of the most interested bidders are already carrying significant amounts of debt. At current debt levels, the robust free cash flows would make the debt manageable, but should either Constellation Brands or Fortune Brands win the bidding war for Allied Domecq, the ratings agencies have already communicated that their credit ratings are likely to be lowered, and, in turn, the cost of servicing their debt would increase.

As long as sales remain robust, and there's no reason to expect otherwise, the debt should still be serviceable. Expansion comes at a cost, however; in the case of Brown-Forman and Fortune Brands, rising debt expenses would eat into the dividend increases and share buybacks that shareholders have come to expect.

Who is conspicuously absent from the bidding for Allied Domecq? Income Investor pick Diageo (NYSE:DEO). Out of all the players in the industry, Diageo may be in the best position to fund the acquisition, but because it's already large and in the last few years shed itself of all non-beverage businesses, it appears to be relatively uninterested, and everyone already seems to have a partner at this dance.

I'm inclined to think that Diageo's stance is the best one. The market continues to bid the shares of Allied Domecq above the offer made by Pernod and Fortune Brands, and often in these bidding wars, the winner doesn't really win at all. In a curious twist of events, Diageo may end up as one of the few players in the industry left unencumbered by debt and with the flexibility to pursue any strategy it wishes.

For more on the Allied Domecq bidding and on Diageo, check out the following articles:

Regardless of who wins the bidding for Allied Domecq, NathanParmelee is very curious to see where Dunkin' Donuts will end up. He has no financial interest in any of the companies mentioned.