Drinks giants spurn Arnault's merger plan

Grand Metropolitan and Guinness are determined to forge ahead with their pounds 23bn merger despite protests by LVMH, the French luxury goods group which is the largest shareholder in both the UK drinks groups.

GrandMet and Guinness are set to reject proposals by Bernard Arnault, LVMH's chairman, to merge its champagne and cognac subsidiary, Moet Hennessy, with IDV and United Distillers, the spirits businesses of GrandMet and Guinness respectively. They will terminate talks with Mr Arnault unless he is willing to put forward other proposals.

"This three-way merger does not give us value for our shareholders. We do not need a deal. We have our deal and it is up to LVMH to provide an alternative which provides greater value for our shareholders. We are not merging for the sake of empire building. We are doing it for the good of our shareholders," a GrandMet spokesman said yesterday.

LVMH, however, is determined to push for a three-way merger and plans to lobby GrandMet and Guinness' other shareholders for support to block a straight merger between the UK food and drinks groups.

"Shareholders in GrandMet and Guinness should be insulted that they have not given this proposal more consideration as it clearly gives more shareholder value. It doesn't take much to realise we can get extra cost savings out of this," an LVMH spokesman said.

In a letter sent yesterday to George Bull and Tony Greener, chairman of GrandMet and Guinness respectively, Mr Arnault outlined plans to create a joint spirits business which analysts believe could be worth up to pounds 15bn.

Mr Arnault wants a 35 per cent share in the combined business in exchange for LVMH's 66 per cent share in Moet Hennessy and its shareholdings in GrandMet and Guinness of 6.4 per cent and 14.2 per cent respectively. Under his proposal the combined group would be floated on the London and Paris stock exchanges. GrandMet and Guinness would then demerge their food and brewing interests, which include Burger King and Guinness Brewers.

A three-way spirits merger would bring cost savings of around pounds 60m, over and above the pounds 175m Guinness and GrandMet have estimated they would save from a merger.

However most analysts believe Mr Arnault's demands are too high.

"We are back to square one. Mr Arnault's calls for a 35 per cent stake are too much. There is not much extra value to be had in demerging the GrandMet and Guinness businesses. And a deal giving a 35 per cent control of a merged spirits business would destroy shareholder value, outweighing any extra cost savings," said Mark Puleikis, drinks analyst at Merrill Lynch.

"Arnault is injecting assets worth around pounds 2.4bn into a three-way merger, which represents just 10 times the earnings he will receive. He is paying about two-thirds of what he should be paying for this stake," said Robert Cumming, UBS drinks analyst.

LVMH has hinted that it was willing to accept a lower stake in the combined spirits business and believes this was likely to be the first stage in protracted negotiations.

But Guinness and GrandMet are unwilling to consider a break up. Indeed GrandMet considered a demerger last year but ruled it out on the grounds that there was too little shareholder value to be gained.

The three-way spirits merger was first outlined in a crunch meeting between the three parties in Paris several weeks ago and Guinness and GrandMet believe the formal proposals offer nothing new. "We have looked at these proposals and there has been no Damascan Conversion. We are nowhere near an agreement," a GrandMet spokesman said yesterday.

LVMH has also outlined an alternative deal to swap its 66 per cent stake in the Hennessy cognac business for Guinness' 34 per cent stake in the Moet champagne operation in a meeting in Mr Arnault's private jet at RAF Northolt in Middlesex last week. However GrandMet and Guinness have also moved to reject this deal.

But the battle is far from over. Mr Arnault will not give up without a fight, and the flamboyant French entrepreneur is no stranger to controversy. He only won control of LVMH in the late 1980s after a bitter boardroom coup, and his business dealings show a streak of ruthlessness and a desire not to settle for second best. "He is a shrewd and ruthless negotiator that should never be underestimated. I certainly would not trust him," said one analyst.

Mr Arnault's aggressive tactics have rocked the normally staid French corporate world, never more so than his recent attempt to take over wine producer Chateau d'Yquem, where he had teamed up with the disenchanted members of the Lur Saluce family to force through a deal. GrandMet and Guinness may still have a fight on their hands.

Suggested Topics
News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
PROMOTED VIDEO
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?