Allied mulls two-way split

Now that Allied Domecq has completed its withdrawal from brewing, attention will shift to the future of a group which has created a focus for its once sprawling empire, but which failed to transform it into the shareholder value being demanded by increasingly restive institutional investors.

The sale of Allied's stake in Carlsberg-Tetley is the latest move in a radical reconstruction of the group whose interests once spanned cup cakes to car sales and beer but which has reverted to two main operations, retailing and spirits. From Dunkin Donuts and Baskin Robbins on the retail side to Beefeater, Kahlua, Teachers and Sauza in spirits, Allied is a world away from the J Lyons teashop chain that flourished at the turn of the century.

The recent appointment of Sir Christopher Hogg as chairman has been seen as the prelude to a break-up of the group into its core retailing and spirits operations - a move which some analysts believe might attract higher ratings, if only because the constituent parts could attract a bid approach.

The market's scepticism about the group, whose expected profits for the year to the end of this month will be more than halved by the pounds 320m write- off accompanying the Carlsberg sale, is reflected in a dividend yield of almost 7 per cent and a sharp discount to the market average price- earnings ratio.

Chief executive Tony Hales is under pressure to reverse a dismal five years in which the company has seemed to stagger from one disaster to another. In 1991, the group lost heavily on the foreign exchange markets in a misjudged hedging operation and, in 1994, the acquisition of Domecq, the Spanish-Mexican spirits business, preceded by only a few hours a devaluation of the peso which massacred the business's profits.

The company has also been hit by stagnation in the global spirits market, which has suffered a hangover after the party of the 1980s.

As the boom collapsed, consumers refused to accept price rises of between 5 and 10 per cent a year, and rises of only one or two per cent are now normal. Own-label drinks are becoming a threat, and all the big spirits groups are paying the price for a lack of marketing spend.

As a result, Allied has seen its shares massively underperform the rest of the stock market. Since 1992, they have lost half their value relative to other stocks, and there has been increasing pressure from institutional investors for changes in management and strategy.

Sir Christopher, who pulled off a highly successful demerger at Courtaulds in the early 1990s, is expected to attempt something similar at Allied, although to date he has only said that all options for the group are under review.