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
Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own