French drinks group Pernod Ricard is reported to be considering a bid for Allied Domecq, sending shares in the world's second-largest spirits group as much as 7 per cent higher.

"We never hid the fact that we were interested by acquisitions of both local or global brands," Pernod, which owns Irish Distillers, said.

Allied and Pernod both declined to comment on the "market speculation" which has surfaced several times in the past.

The Wall Street Journal, citing people familiar with the matter, said the two groups had not yet been in contact about a deal, and Pernod may still decide to shelve any approach.

Analysts said a Pernod-Allied story has been compelling ever since Pernod nearly bid for Allied in 1999, and there was a good case for the second- and third-largest spirits players getting together to try to match the size of industry leader Diageo.

"A combination of Allied and Pernod would make huge commercial sense given that the tier-two players have to operate a global distribution network but have less than half of Diageo's volumes," said Cazenove in a note.

But bidding for Allied would be a huge deal for Pernod, probably too big, and Allied's performance has been transformed since Pernod last thought of bidding in 1999, the broker said.

Other analysts said Allied and Pernod were both worth around $10.5 billion, but Allied has a value of $14.3 billion including debt and would be worth even more with a decent price premium.

They said the only way a deal would work without destroying shareholder value would be through an all-share merger similar to the Guinness-GrandMet deal to create Diageo in 1997, but the biggest problem would be over who had ultimate control.

They added the portfolios are complementary in terms of geography and brands with the biggest overlap being in Spain.

Allied's key brands are Ballantine's scotch, Beefeater gin, Sauza tequila and also Stolichnaya vodka in many markets.- (Reuters)