French drinks giant Pernod Ricard today won a three-way race to acquire the Swedish-based state-owned Vin & Sprit (V&S), the makers of Absolut vodka, in a deal valued at $8.89 billion or €5.6 billion.

This is one of the biggest acquisitions in the history of drinks companies, and may well catapult it towards the top of the chain in the spirits world from its current runner-up position. However, it is not the biggest spirits deal, not even for Pernod Ricard. Three years ago it had purchased Britain's Allied Domecq for $13 billion.

Absolut is currently the second most popular vodka brand in the world after Smirnoff, and the fastest growing. It currently sells 10 million cases, but is quite a long way behind Diageo-owned Smirnoff which shifts 23 million cases a year. Each case is equivalent to 12 bottles or seven litres per case. In terms of all spirit brands, its stands fourth after Diageo's Smirnoff vodka, Bacardi rum and Diageo's Johnnie Walker scotch whisky,

Pernod Ricard said after the deal its annual sales volume would total 91 million 9-litre cases of spirits, based on industry figures. That will put it just behind leader Diageo with 93 million.

The Swedish government said the French company - owner of brands such as Chivas Regal whisky, Mumm champagne and Beefeater gin - intends to keep Vin & Sprit and Absolut vodka based in Sweden. Pernod Ricard chairman Patrick Ricard confirmed as much when he said, "There is no written contract about that but the value of the brand is because it is Swedish. A Swedish brand must be produced in Sweden".

Diageo had been one of the contenders for Absolut, but had pulled out of the race last month when it agreed to set up a £460m joint venture with Ketel One, the Dutch family-owned vodka brand.

Other challengers to Pernod Ricard in the auction had been the US firms Bacardi and Jim Beam bourbon maker Fortune Brands. Fortune was regarded as the frontrunner because of a US distribution alliance that has exclusive rights to sell Absolut in America for four years, as well as its majority presence in Bearn Global where Absolut has a 10 per cent stake. Half of Absolut's sales are in American markets.

The Bearn stake is not included in the sale. Fortune said it would begin repurchasing its own shares after the auction defeat.

Although analysts have applauded the deal, considering it to be of great strategic significance, they are somewhat skeptical about the high price paid for the brand. The share markets also haven't responded favourably to the deal, with Pernod Ricard shares tanking on the bourses.

Pernod Ricard said a €12 billion syndicated loan would pay for V&S and refinance existing debt. Pernod Chief Executive Patrick Ricard acknowledged Absolut was an expensive brand but said this was necessary to fill a portfolio gap and promised to get debt levels down quickly, saying that they did not want to miss a golden chance to acquire the premium brand when it came up.

Pernod said the deal valued V&S at 20.8 times 2007 gross operating profit, or 14.2 times after synergies from the deal. Deutsche Bank and J P Morgan advised Pernod on the deal.

Absolut was introduced in 1879 by the Swedish entrepreneur Lars Olsson Smith in the town of Ahus, initially under the name "Tiodubbelt Renadt Bränvin" (Tenfold Purified Vodka), and later changed to "Absolut Rent Bränvin" (Absolutely Pure Vodka). In 1917, the Swedish government monopolized the alcohol industry in the country. Now its sell marks the biggest privatization step taken in recent times in Sweden.