City & Business: Don't let this double go to your head

Grand Metropolitan's pounds 24bn merger with Guinness to create GMG Brands has opened to generally rave reviews. With such a quality cast of brands this is not surprising. But there is a danger in getting too carried away by first-night fever. This deal is the single biggest challenge faced by any British management. Putting together two such powerful enterprises requires sensitivity and decisiveness in equal measures. To pull it off will represent a breathtaking achievement.

The biggest problem GMG Brands has is its own commitment to the principle of a genuine merger. Most mergers are in reality takeovers in which one partner is clearly calling the shots. This is an essential part of integration. It is much easier to take difficult decisions unencumbered by the need to keep another partner happy. Jobs are shed, offices closed and businesses sold with impunity under a takeover. It is a different story with a genuine merger.

Guinness and Grand Met insist that this is a genuine merger, which will be reflected in board representation and business structure. An honourable sentiment, but it makes the task of John McGrath, chief executive elect of GMG Brands, more difficult. Fortunately he is one of Britain's better managers, with a rare ability to square impossible-looking circles. He is helped by the complementary nature of the businesses, which cuts the level of overlap, but his task remains demanding.

Matters will not be helped by the delay of perhaps six months while the deal is put through the regulatory hoops. Meanwhile Guinness and Grand Met are supposed to carry on competing. Will they be fighting for their shareholders or fighting for survival? Tension can be creative but it can also be destructive, particularly when significant job losses are planned.

There will, therefore, be a vacuum of uncertainty to be exploited by rivals such as Allied Domecq and Seagram. It is easy to argue that the merger sounds the death knell for the likes of Allied Domecq, but that is simplistic. If GMG for one minute begins to look inwards at its integration rather than out to its customers, the moment of weakness will be brutally exploited.

The logic of the GMG merger is compelling. It is a bold move to exploit the crying need for consolidation in the global drinks market. The combined group oozes with potential. Crystallising that potential is much more difficult than has so far been realised. I believe that GMG will succeed, but it will be a slow-burn project. The benefits will be greater than has so far been imagined, but they will be slower to materialise.