It seems that a few other parties besides Pernod and Fortune Brands
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
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
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: