Arnault set to talk with spirits groups

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The Independent Online
Talks that are scheduled to be held this afternoon between Bernard Arnault, the combative head of the LVMH luxury goods group, and Guinness and Grand Metropolitan over the two spirit groups' pounds 23bn merger appear doomed to failure unless one side is prepared to make a last minute concession.

Guinness, which has a 34 per cent stake in LVMH's Moet Hennessy drinks division, and Grand Metropolitan believe that a merger would be in the general interests of their shareholders and are determined to push the deal through.

But LVHM, which is the largest shareholder in both Guinness and GrandMet, wants to break up the deal. Instead Mr Arnault wants to broker a merger of Moet Hennessy with the IDV and United Distillers, the respective spirits divisions of GrandMet and Guinness. Neither party seemed willing to compromise yesterday and both believed the other should take the lead in the negotiations.

It is thought that GrandMet and Guinness would be prepared to give Mr Arnault an equity stake in the combined spirits business providing the Guinness and GrandMet merger goes through. But LVHM is understood to have ruled out such a proposal. Mr Arnault is also unwilling to sell LVMH's 66 per cent stake in Moet Hennessy to Guinness.

Mr Arnault has spent pounds 800m buying a 6.4 per cent stake in GrandMet over the last month in an apparent attempt to increase his bargaining power at the negotiating table. But he needs 25 per cent of GrandMet's shares to block the merger.

If the talks fail the fate of the merger will then be in the hands of the French courts. Mr Arnault believes the Guinness-GrandMet merger signifies a change of control of Guinness and triggers a pre-emptive right by LVHM to buy back the UK's company's minority shareholding in Moet Hennessy and it lucrative drinks distribution contracts around the world.