Arnault quits Diageo board

THE ANNOUNCEMENT yesterday by Bernard Arnault, chairman of Moet Hennessy Louis Vuitton (LVMH), that he was resigning from the board of Diageo prompted a flurry of speculation that the French luxury goods group would now cut its 11 per cent stake in the British food and drinks giant.

Mr Arnault has repeatedly said the LVMH holding in Diageo is not a core long-term holding ever since he tried to block the pounds 24bn Guinness-Grand Metropolitan merger in October 1997.

However, the share price of the fast food, wine, spirits and beer group has done well, so there has been little pressure on Mr Arnault to sell, say sources close to the French group. Diageo's shares rose from around 550p in January to a high of 778.5p in the summer before the Asian turmoil and the strong pound forced them down to a low of 480.5p in October. Yesterday the shares finished 21p down at 684p.

Analysts said this was still well above the 630p Mr Arnault paid for around half his stake in Diageo. He extracted pounds 250m in cash in return for his agreement to the merger, as well as pounds 250m in dividends and pounds 300m in cost savings.

LVMH's shares fell 7 francs yesterday to Ffr1,078. LVMH said it would not be providing a replacement for Mr Arnault on the Diageo board, although it regards the trading joint venture between Diageo's wine subsidiary UDV and Moet Hennessy as a success.

A spokeswoman for Diageo said there were no plans for the UK group to cut its own 34 per cent holding in Moet Hennessy, even if Mr Arnault did reduce his stake in Diageo. The link with Moet Hennessy had gone "from strength to strength since the creation of Diageo", she said.

Mr Arnault said he was leaving "due to pressure of other commitments". He added: "I should like to emphasise that I fully support the way in which the Diageo board are managing the company."