UK drinks giant Allied Domecq has seen off the brewer of the Castlemaine XXXX beer in a scrap for the hand of New Zealand's biggest winemaker.

Brewing firm Lion Nathan, which at one time looked favourite to win the tussle, has agreed to sell Allied its remaining 43% stake in the vineyard.

The decision effectively hands victory to Allied, the world's second largest spirits firm, in the six-month scrap to take over the winemaker Montana.

Lion Nathan chiefs defended the climbdown on grounds that accepting Allied's offer of 4.80 New Zealand dollars (NZ$) per share represented a more financially prudent outcome than taking over a firm which may not have the market potential that analysts have claimed.

Value for money?

"We decided we would sell into Allied's bid, rather than exceed our own valuation range [of $3.20 to $3.80], " Lion Nathan's Warwick Bryan told the BBC's World Business Report.

The sale, coupled with an earlier sell-off of a 19% stake, will also hand Lion a NZ$127m profit on shares it has built up in Montana over the past year.

"Exiting at this price does create significant value for shareholders," Lion chief executive Gordon Cairns said.

"As a result of this sale, Lion Nathan is in a strong financial position. The strength of our balance sheet... will enable us to make the most of future growth opportunities in the Australasian wine industry."

Lion Nathan is the brewer of Castlemaine, Tooheys and Swan beers for the Australian market.

'Desirable purchase'

Lion believes the purchase of Montana, which accounted for about 45% of New Zealand's wine production last year, represents a better prospect for Allied, which is better positioned to exploit synergies through the deal.

Allied already boasts considerable wine interests, in June adding California winery Buena Vista to a wine portfolio including Napa Valley enterprise William Hill, Marques de Arienzo in Spain, and the Balbi vineyard in Argentina.

"We can gain great value almost immediately," an Allied Domecq spokeswoman said, adding that the firm intends to invest in Montana "very strongly".

Chief executive Philip Bowman said Montana's prominence in home and export markets made it a "thoroughly desirable" purchase.

Overnight raid

In the spring, Lion had looked favourite to win the takeover battle, after gaining a holding of 62% in Montana, and with it an apparently unassailable position.

But the firm was forced to sell a 19% stake acquired in an overnight raid in February after the New Zealand Stock Exchange found the deal breached regulations.

Earlier this month Lion lost a court case over the ruling.