Arnault questions calculations behind GMG tax charge

Bernard Arnault, the head of French luxury goods group LVMH, yesterday fired off another shot in his battle to scupper a pounds 23bn merger between Grand Metropolitan and Guinness by calling on the UK drinks companies to reveal how they calculated the pounds 1.5bn tax bill they claim would result from his alternative proposals to split the companies up.

Guinness and GrandMet, which would be renamed GMG Brands, have denounced Mr Arnault's alternative demerger plans to create a pounds 15bn wines and spirits group comprising the Moet Hennessy part of LVMH, the IDV drinks arm owned by GrandMet and the United Distillers business of Guinness. They claim the proposals, which would involve creating four quoted companies by demerging Burger King and Pilsbury, the food businesses of GrandMet and Guinness' brewing arm, would instantly destroy pounds 1.5bn of shareholder value.

However Mr Arnault is considering tabling alternative proposals to keep Burger King and Pilsbury together and just spin off the Guinness brewing arm, designed to limit the tax bill. Analysts believe most of the pounds 1.5bn tax charge relates to the demerger of Burger King and Pilsbury. GMG Brands refused to comment on how much tax these new proposals would save but admitted the final bill would be lower if Burger King and Pilsbury remained as a single company.

"They should release detailed figures. They can always produce figures to say what they want to say. But precedent has shown that no tax problem is insurmountable," an LVMH spokesman said yesterday.

However GMG looks set to swiftly reject these alternative plans. It has conceded that pounds 1.1bn of the pounds 1.5bn relates to the demerger of the three businesses. But it maintains the demerger of Guinness' brewing arm alone could incur a hefty tax bill. Analysts suggest it could cost GMG several hundreds of millions of pounds.

Industry sources suggested Mr Arnault would be willing to get around the problem by seeking trade buyers for the Guinness brewing division, Burger King and Pilsbury. Several rivals are believed to be running a slide rule over the business and analysts believe Guinness' brewing arm would be a prime target for some of the world's largest drinks firms.

Mr Arnault is in London today to continue lobbying GrandMet's institutional shareholders to accept his alternative proposals, in an attempt to muster enough support to block a straight merger. He has spent more than pounds 1.4bn launching a raid on GrandMet shares, selling Guinness shares to fund the purchase. Yesterday he raised pounds 3m by disposing of 500,000 shares at 600p each.

GMG Brands is prepared to change the terms of the deal from a scheme of arrangement to an offer which would require a simple majority to vote in favour of the deal, making it difficult for Mr Arnault to achieve his goal.

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