Arnault drops opposition to Guinness/GrandMet deal

The main threat to the pounds 24bn merger between Guinness and Grand Metropolitan was removed yesterday when the two UK drinks companies reached an agreement with Bernard Arnault, the head of French luxury goods group LVMH who, until now, has been hell bent on scuppering the deal.

Andrew Yates reports on how the record breaking drinks merger is now virtually certain to go ahead.

Mr Arnault has called a truce in his fierce battle to overturn the merger between Guinness and GrandMet. After months of secret and heated negotiations which involved regular meetings between Mr Arnault and senior executives at Guinness and GrandMet, the two sides eventually thrashed out an agreement at 7pm on Saturday evening.

Guinness has agreed to pay Mr Arnault's LVMH group a lump sum of pounds 250m cash. The Frenchman will also receive another pounds 250m by way of a special dividend when the merger takes place early next year.

Mr Arnault will also take up a seat on the board of the combined drinks company, to be called GMG Brands, as a non-executive director.

In return, GMG Brands will be allowed to distribute LVMH's spirits brands such as Moet & Chandon Champagne and Hennessy cognac around the world.

GMG Brands believes the deal will save it pounds 20m a year on top of the pounds 175m cost savings the merger is already expected to bring. Mr Arnault also expects to reap savings of pounds 20m, a third of which will find its way back to Guinness which owns a 34 per cent stake in Moet-Hennessy, the spirits business of LVMH. GMG Brands also believes the agreement will lead to a substantial rise in spirits revenues.

The agreement is also likely to have saved each group millions of pounds in legal and advisers' fees. Mr Arnault has called a halt to what promised to be a lengthy legal action against GMG Brands that could have cost the merged drinks group more than pounds 1bn in compensation.

Mr Arnault has dropped his demands for a 35 per cent stake in a separately quoted drinks company and the demerger of GMG's non-spirits businesses such as Burger King and Guinness' brewing division.

The dispute between GMG Brands and Mr Arnault started when the merger was announced in May and developed into a very bitter and public row

Mr Arnault has spent more than pounds 1bn buying up GrandMet shares to obtain a stronger position at the negotiating table in his determined attempt to scupper the original deal. He has also lobbied a host of institutional shareholders in Guinness and GrandMet on both sides of the Atlantic to garner support for his alternative merger plans.

LVMH is currently the largest shareholder in both the UK drinks group's with a 11.1 per cent stake in GrandMet and a 11.4 per cent holding in Guinness. This would entitle Mr Arnault to a stake of just over 11 per cent stake in GMG.

John McGrath, chief executive of GrandMet, said yesterday: "There were a lot of public histrionics which were not very dignified. Over the last few months we have had a whole series of private meetings to sort out an agreement. This is not a pay-off. It is an evolutionary deal ... that enhances shareholder value."

Tony Greener, chairman of Guinness, added: "This comes as a great relief. It gives us more flexibility and we can introduce new brands around the world."

The agreement removes the main obstacle remaining for the merger, which will create a huge force in the world-wide drinks business, bringing together a vast collection of famous brands including Smirnoff Vodka, Gordon's Gin and Johnnie Walker whisky.

However, the deal still has to be cleared by the European Commission and the Federal Trade Commission in the US. Both are likely to demand GMG gives up some of its Scotch whisky brands. If the merger gets the green light it should be completed by January.

Philip Hawkins, a drinks analyst a Merrill Lynch, said: "This is a pragmatic agreement. LVMH, which has had its own trading difficulties in the Far East, realises it was better off with the two strongest rivals. And the deal looks cheap for GMG Brands at twice the price."

GrandMet's share price jumped 21p to 604p and Guinness' shares rose 28.5p to 605.5p.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
News
news
News
Sir James Dyson: 'Students must be inspired to take up the challenge of engineering'
i100
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
TV
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?