Diageo may drop out of the race to buy Seagram's drinks arm dashing Canadian hopes of running a proper auction. The spirits company is unwilling to buy the remaining drinks portfolio if Allied Domecq's proposed acquisition of Captain Morgan's rum brand goes ahead.

Puerto Rican company Destileria Serralles, which manufactures key elements of the rum, has said it will exercise its power of veto if anyone other than Allied wins the Seagram auction. But Diageo's legal team has advised the Serralles-Allied agreement may be invalid. Seagram also denies the claim.

Allied Domecq is now favourite to win the $7bn (£4.8bn) race for Seagram's spirits. Diageo has teamed up with Pernod Ricard and the pair had hoped to acquire the Seagram spirits business, dividing the brands between them.

The Sunday Times believes that if Allied's chief executive Philip Bowman fails to buy the Seagram business, he will look for another deal. The company is currently too small. Analysts expect Allied this week to announce profits of £400m, up from £221m last year.

Sunday Business 29/10/00 page 3

The Sunday Times 29/10/00 page 13 (Business Sharewatch)

The Observer 29/10/00 page 2 (Business)

The Financial Mail on Sunday 29/10/00 page 15 (The Markets)

Financial Times 28/10/00 page 16, page 2 (Preview, Weekend Money)

The Daily Telegraph 28/10/00 page 31

The Times 28/10/00 page 58 (Stock Market, Business section)

The Independent 28/10/00 page 20, page 21 (Outlook, Market Report)