Shareholders in both companies will receive next February 864 Diageo shares and 136 B shares, with a cash value of 70p each for every 1,000 shares they now hold in either company. The B shares can be cashed in free of charges and counted as a capital gain.
Alternatively, shareholders can elect to keep the B shares, which will earn a variable dividend based on 75 per cent of the current three month LIBOR rate in the London money markets, but as soon as 75 per cent of the issue has been cashed, Diageo will have the right to convert all remaining B shares to ordinary shares at the equivalent market value at the time.
Neither GrandMet nor Guinness will pay a final dividend, but in addition to the special bonus Diageo will pay an interim dividend of 12.5p in April 1998. This includes an interim payment of 7.2p and a one-off payment of 5.3p to reflect the change in the GrandMet year-end from 30 September and the Guinness year-end from 31 December to the new Diageo year-end on 30 June.
Diageo will then pay a final dividend next November which is expected to be not less than 10.8p. Payments have been calculated so that no shareholder is worse off although GrandMet shareholders may be marginally better off, advisers said yesterday.
The agreement last month to dispose of various brands including Dewar's whisky in Europe in order to win approval for the merger from the European Commission, will not have any material impact on profits, Tony Greener, the Guinness chairman, told shareholders yesterday.
The two companies are also expected to sacrifice Dewar's, one of the biggest selling whisky brands in the US in order to win clearance from the FTC in the US. This decision may not be known until the shareholder meetings have been held. Any additional disposals the US authorities may require will not, however, reduce pro forma profits by more than 5 per cent.
Subject to shareholder approval the merger will take effect and dealings in Diageo shares will start on 17 December 17. GrandMet shares rose 6.5p to 544.5p yesterday and Guinness gained 14.5p to 547.5p.