Guinness and Grand Met, which plan to merge to create GMG brands, have threatened to change the terms of their deal to avoid putting the merger to Grand Met shareholders for their approval. This involves scrapping the current scheme of arrangement which requires 75 per cent Grand Met shareholder approval and transforming the deal into a straightforward takeover offer of Grand Met by Guinness. Guinness would only need 50.1 per cent acceptances for the deal to go ahead.
The Arnault camp believes such a proposal, which was first mooted two months ago, is impractical. However, LVMH insiders say Mr Arnault is not bereft of ideas. So far he has gently rebuffed approaches to co-operate with other drinks companies. However, if it takes a bid for Guinness to block the merger with Grand Met then Mr Arnault will consider co-operating.
However, the threat to change the deal has increased Mr Arnault's resolve to press ahead with plans to sell his Guinness shareholding and build a 25.1 per cent blocking stake in Grand Metropolitan if the two companies do not amend their merger plans to accommodate the Frenchman's ambitions.
That 25.1 per cent stake presents a significant deterrent to the threat to orchestrate a Guinness takeover of Grand Met. Mr Arnault would still be in a position to prevent the essential restructuring of Grand Met needed to implement the merger. Valuable tax breaks would be lost and Grand Met may even be forced to maintain a separate stock market listing.
Mr Arnault's preferred approach is to marshal sufficient institutional opposition to force Grand Met and Guinness to reconsider his own alternative proposals. However, he will accumulate a 25.1 per cent stake in Grand Met if needs be.
Mr Arnault signalled his frustration at the lack of progress on a negotiated settlement when he resigned from the Guinness board last week.
Under his proposal the Grand Met and Guinness drinks companies would be rolled in with LVMH's drinks business. Grand Met's Pillsbury and Burger King divisions and Guinness Brewing would all be hived off.
Last week Guinness and Grand Met rejected those proposals, saying they would be significantly worse for their shareholders.
There has been a marked deterioration in relationships between the British companies and LVMH which has prompted Mr Arnault to consider more aggressive action.