In a move that caught the stock market completely by surprise, the flamboyant Frenchman launched a raid on GrandMet's shares and simultaneously started to reduce his holdings in Guinness. The move came less than a week after he made an embarrassing U-turn over his alternative plan to merge the drinks business of all three companies and demerge GrandMet's food manufacturing and fast-food operations.
Dealers said yesterday that Mr Arnault probably spent more than pounds 450m buying GrandMet shares, taking its stake in the company past 10 per cent. LVMH part funded the purchase by reducing its stake in Guinness from 14.2 per cent to around 12 per cent, raising more than pounds 200m in the process.
According to an LVMH spokesman, Mr Arnault was prepared to carry on amassing shares in GrandMet and reducing his holdings in Guinness in an attempt to gain enough stock to block their merger.
"Mr Arnault and LVMH now have a variety of options and buying more shares in GrandMet and selling more in Guinness is one of them," the spokesman added.
Analysts believe that Mr Arnault could end up with enough shares to scupper the Guinness-GrandMet deal. "Mr Arnault is trying to scare GrandMet and Guinness into doing a deal with him. He would end up with around 18 per cent of GrandMet if he sold all his Guinness shares and bought GrandMet shares with the proceeds. That could well be enough to block a merger," said one leading drinks analyst.
To block the deal LVMH needs to have at least 25 per cent of the stock owned by those GrandMet shareholders that attend a meeting to sanction the merger. An 18 per cent shareholding in the company could well be enough to carry the vote, given that not all GrandMet's private and institutional shareholders are likely to attend such a meeting.
Mr Arnault is determined to force Guinness and GrandMet to accept alternative merger plans he formally tabled, and subsequently amended last week to create a pounds 15bn wines and spirits business, comprising the Moet Hennessy part of his LVMH group, the IDV drinks arm owned by GrandMet and the United Distillers business of Guinness.
Originally, Mr Arnault was seeking a 35 per cent stake in the new group but was now willing to accept a much lower stake, perhaps less than 30 per cent, to appease Guinness and GrandMet shareholders. But Guinness and GrandMet have spurned the proposals.
LVMH has chosen to increase its stake in GrandMet as it was blocked from increasing its shareholding in Guinness. "Mr Arnault undertook not to increase his shareholding in Guinness but there are no restrictions on him selling shares and he could sell his whole stake," a Guinness spokesman said yesterday. Mr Arnault had already spent more than pounds 800m buying a 6.4 per cent stake in GrandMet prior to yesterday's raid.
Dealers yesterday said that BZW, LVMH's broker, was offering to buy three GrandMet shares for 630p as long as the seller was prepared to buy two Guinness shares for 600p. GrandMet's share price closed at 622p, up 16p on the day while Guinness's price slipped 9.5p to 598p.
"Mr Arnault could have financed the deal without selling shares in Guinness. But it would have been tight and he has already spent a lot of LVMH's money to get a deal. This is a clever and sensible way to fund the deal," one analyst said.
The raid on GrandMet's shares came just 24 hours after he tended his resignation from the board of Guinness. He has been at loggerheads with the board and Guinness's chairman, Tony Greener, since the UK drinks group informed him of its merger plans in May. "Mr Arnault's resignation is likely to be ratified by Guinness' board tomorrow. Now he is no longer a director he can sell more shares even though our closed season begins tomorrow," a Guinness spokesman said.
Mr Arnault he plans to woo institutional shareholders by holding a series of top level meetings over the coming weeks.
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