He wants to build up a significant stake to exert maximum pressure on GrandMet to force it to consider a proposal to merge the LVMH drinks group Moet Hennessy with the spirits divisions of both Guinness and GrandMet. Mr Arnault surprised GrandMet by paying pounds 27.4m for a 0.23 per cent stake in the group late on Tuesday afternoon.
The combative Frenchman also hopes to increase his negotiating position in a legal battle with Guinness over the fate of Moet Hennessy. LVMH claims the merger invokes a change of ownership clause which gives it the automatic right to repurchase Guinness's 34 per cent stake in Moet Hennessy and lucrative worldwide distribution contracts at a knock-down price.
LVMH has taken its case to French arbitrators. The legal battle could take months and GrandMet and Guinness may be forced to settle out of court to push through the merger.
LVMH is unlikely to buy any more shares in the immediate future. But it is expected that Mr Arnault will gradually increase his stake in GrandMet over the next few months if its price weakens. GrandMet's shares rose 5p yesterday to 586p on news that LVMH has started to buy the stock. Mr Arnault also owns a 14 per cent stake in Guinness but is under a commitment not to raise this further.
The GrandMet-Guinness merger is also likely to face a full enquiry by the European Competition. Competition commissioner Karel Van Miert is expected to announce tomorrow that he has decided to launch a four-month investigation into whether the deal raises serious competition concerns. The US regulatory authorities are also likely to take a long hard look.