Business Comment: LVMH chief aims to get his pound of flesh

The large spanner that Bernard Arnault threw in the direction of the Guinness-GrandMet merger yesterday was clearly designed to grab the attention of his own shareholders as much as anything as they gather today for the annual meeting of LVMH in Paris.

That said, the capacity of this agile Frenchman to make life miserable for Tony Greener and George Bull should not be underestimated. He may not have the means to produce a showstopper and his dream of a grand three- way global drinks alliance encompassing Moet Hennessy, IDV and United Distillers may be just that. But he is clearly intent on levering the maximum amount out of the deal.

Mr Arnault may actually have a point. It may well be true that the clauses in the joint venture agreements between Guinness and LVMH were included to protect Guinness in the event of a takeover not a merger, but Guinness may be being economical with the truth. Guinness and GrandMet have gone out of their way to present this deal as a merger of two equals but there are several measures by which this does not hold true. For a start GrandMet will control 53 per cent of the merged company if the deal goes ahead. And the new chief executive and head of spirits will both come from GrandMet.

LVMH says that even if Guinness is not breaking the letter of the joint venture agreements it is certainly breaking their spirit. This, they say, will be enough to win the day in a French court where this issue will be decided. Interestingly it seems that Guinness has not consulted any French lawyers. If Mr Arnault's challenge scuppers GMG Brands before it has even taken to the water, there are going to be some very embarrassed City lawyers who will be wondering if they have really earned their fees.

The response of the GMG Brands camp to anything that threatens to interrupt the smooth flow of their path to merger is to go into denial. The deal does not raise competition concerns because GMG Brands says it does not. Likewise Mr Arnault does not have a case that needs answering because GMG Brands says so.

Guinness and GrandMet face more serious regulatory problems than they admit to and they have now been hit by a French broadside. They may yet win the day but not before Mr Arnault and the regulatory authorities have extracted their pound of flesh.

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