North British, an unquoted company owned by 600 shareholders, announced two weeks ago that it had received a bid approach.
Grand Metropolitan declined to comment on the speculation. Brian Ivory, managing director of Highland, adopted the same stance.
North British was set up last century by a consortium of wholesale whisky merchants to provide a reliable source of grain whisky for blending.
The company, based in Edinburgh, provides cooperage, bonded storage and transport services for customers, including many well-known blenders.
Its biggest shareholder, with 33 per cent, is Robertson & Baxter, which itself is 35 per cent owned by Highland. North British, in turn, has a 4.8 per cent, pounds 17m stake in Highland.
Sources say the rationale for the joint bid is probably defensive, built on fears that another large drinks company has North British in its sights. Seagram of Canada is one of the names rumoured to be interested.
IDV sources grain whisky from North British for its J&B Rare, the second biggest selling blended Scotch in the world. Highland also uses the grain whisky for its Famous Grouse brand, 2.2 million cases of which are sold annually.
North British had sales of pounds 31.3m in 1992, down from pounds 33m the year before, which largely reflects pressure from surplus stocks of both malt and grain whiskies. Profits eased from pounds 10.2m to pounds 9.8m before tax.
Besides its high pre-tax profit margins of 31 per cent, industry observers say the company's strong cash position is another prime attraction for a bidder. At the end of 1992 the company had cash of pounds 4.1m, which was artificially depressed by forward buying of cheap cereal crops.
Industry observers add that another attraction for buying North British is that the surplus stocks of grain whisky could be washed out of the system by the end of 1993.
Alan Gray, an analyst at Charterhouse Tilney broking house, said: 'I believe the malt surplus is more acute, and will continue beyond this year. Grain, meanwhile, could be in balance by the end of this year.'Reuse content