Dewar's heads for sell-off

Guinness and Grand Met may have to sell Scotch and gin brands to get merger past competition authorities
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The Independent Online
GMG brands is prepared to sacrifice at least one of its best- selling Scotch and gin brands to clear regulatory hurdles in the US.

The company, which will be formed by the merger of Guinness and Grand Metropolitan, will be the largest spirits business in the world and will account for around half of the world's Scotch whisky sales and a quarter of all spirits sales in the US.

John McGrath, the chief executive of Grand Met who will assume the same role at GMG, said that both companies had been satisfied by their competition lawyers "that the deal will go through without material change".

But he added: "I am not saying we won't have to negotiate things on certain brands in certain markets, but it won't affect the financial transaction."

The Grand Met/Guinness merger must be cleared by the competition authorities both at the European Commission and in the US, where the task will fall to either the Federal Trade Commission or the Department of Justice.

A spokesman for the FTC said no official notification of an intent to merge had been received so far from either party. Guinness and Grand Met said last week they had informally notified Brussels of their intentions before announcing the deal and were expecting a preliminary finding from the Commission within 30 days.

Analysts believe that the brands under threat in the US include Dewar's, which sold more than three million cases of Scotch in the US last year, making it one of the top three brands with J&B and Johnnie Walker. Its market penetration outside the US is small and its disposal would be an easy way of satisfying the US competition authorities without hurting GMG's sales in the rest of the world.

Regulators might make the company dispose of one of its gin brands: GMG will have Gordon's, Tanqueray, Gilbey's and Bombay Sapphire gin brands under one roof, giving it domination of the US gin market. Analysts believe that Tanqueray is the most likely candidate for disposal, because it has a similar sales profile to Dewar's.

The GMG case for allowing the merger to proceed untouched will be the argument that all of its spirits brands are merely part of a much larger alcoholic drinks market. Spirits now account for only one in eight alcoholic beverages consumed worldwide, while beer accounts for two-thirds.

However the European Commission dismissed a similar argument from Nestle in 1992 when it took over Source Perrier. It ruled that the mineral water market could not be viewed in the context of the soft drinks market as a whole, and allowed the takeover to proceed only after the Swiss company agreed to sell Vichy, Saint Yorre and other well-known mineral water brands.

Tony Greener, the Guinness chairman, who will be co-chairman of the new company, said that the company had contingency plans in place for any possible decision by regulators. "There is no way we were going to go into this deal without having done our homework," he said.

The City remains divided on whether the deal is good news for Grand Met and Guinness. Ron Littleboy, an analyst at Nomura, said: "It is a masterstroke that will steal a march on the competition." He predicted that Allied Domecq would be forced into a defensive merger as a result.

But John Wakely at Lehman Brothers said: "This industry has been consolidating for 10 years and it has not done a damn thing for value. To say that this deal will solve everyone's problems is naive."

Made in heaven, page 3

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