THE potential merger of drinks giants Allied Domecq and Pernod Ricard yesterday raised doubts about jobs at Scotland's whisky distilleries, warehouses and bottling plants due to feared efficiencies from the deal.

Industry observers predicted that one of the consequences of the possible takeover of Allied by Paris-based Pernod would be a review of the pair's combined facilities, including factories and packaging lines from Speyside to Islay.

Pernod, which makes Chivas Regal and Glenlivet whiskies, was reported to have appointed investment banks JP Morgan and Morgan Stanley to explore potential targets among a list of companies that would allow it to expand its global reach.

Headed by Patrick Ricard, Pernod has never disguised the fact that it believes expansion possibilities still exist. In 2000, the French firm teamed up with Diageo, the world's biggest drinks business, to buy the spirits unit of Seagram which saw the brands carved up between the two groups.

Since then, Pernod has cut its debts, putting it in a better position to make a deal, and the Scotch Whisky Association has also forecast that more consolidation of the sector is on the cards.

Further rationalisation could signal the need for job cuts in an industry which today only employs around 11,000 workers compared with 22,000 in 1980.

However, while overcapacity on the production side of the business remains a topic of concern for the distillers, analysts believe a combination of Pernod and Allied would not necessarily mean massive redundancies but selected closures.

Alan Gray, at Sutherlands, said: "The theory is that Pernod Ricard would not need all three of their bottling plants whereas Allied only has one. Both have a number of distilleries with some already mothballed by Pernod Ricard. There may be one or two distilleries in the combined outfit that may be surplus to requirements."

Spokesmen for both companies last night refused to comment on speculation. However, one source close to the situation confirmed that Pernod had not yet made any approach to Allied although he conceded that the details were likely to have leaked from parties outside the companies.

A Pernod-Allied tie-up is a story which has repeatedly resurfaced ever since Pernod almost bid for Allied in 1999.

Putting the pair together would see the number two and number three spirits groups combine to become almost as big as Diageo, the clear market leaderwith around half of the volume of the world's top 10 spirits.

Gray said he believed that a merger of the two drinks giants did stack up, saying: "Pernod are very pleased with the Seagram acquisitions they have done and it has whetted their appetite.

Geographically it would be a good fit."

The portfolios of Pernod and Allied are complementary in terms of their global spread, with the biggest overlap in Spain.

Additionally, Pernod lost out last year in the race to buy Glenmorangie, which went to French luxury goods firm LVMH.

A spokesman for the Scotch Whisky Association said:

"What is encouraging for Scotch whisky as a whole is that companies both at home and abroad continue to be keen to invest, which shows confidence in the industry."

BRAND NEWS

ALLIED DOMECQ

Blends: Ballantine's, Teacher's.

Malts: Glendronach, Laphroaig, Scapa, Tormore.

PERNOD RICARD

Blends: Chivas Regal, Chivas Revolve, Clan Campbell, House of Lords, Passport, Prince Charlie, Royal Salute, Something Special, White Heather, 100 Pipers.

Malts: Aberlour, Benriach, The Glenlivet, Glen Grant, Glen Keith, Longmorn, Strathisla.

DIAGEO

Blends: Bell's, Black & White, Buchanan's, Dimple, Haig, J&B, Johnnie Walker, Old Parr, Spey Royal, Vat 69, White Horse, Windsor Premier.

Malts: Auchroisk, Benrinnes, Blair Athol, Caol lla, Cardhu, Clynelish, Cragganmore, Dailuaine, Dalwhinnie, Dufftown, Glendullan, Glen Elgin, Glenkinchie, Glenlossie, Glen Ord, Glen Spey, Inchgower, Lagavulin, Linkwood, Mannochmore, Mortlach, Oban, Pittyvaich, Rosebank, Strathmill, Talisker, Teaninich.