Guinness acts to foil Arnault assault

Bernard Arnault was last night having to rethink his strategy to block the pounds 23bn merger between Guinness and Grand Metropolitan, as the two UK drinks companies threatened to make a radical change to the terms of the deal.

Guinness and Grand Metropolitan said that they were prepared to raise the level of shareholder support needed to block the deal to 50 per cent, even though they would face an extra tax bill of up to pounds 70m. Mr Arnault, who heads the LVMH luxury goods group in France, has busily been increasing his stake in GrandMet and lobbying for support from institutions to muster a blocking vote - which is 25 per cent under the current bid terms.

More than pounds 1bn have been spent by LVMH on building up a 11.06 per cent stake in GrandMet, and Mr Arnault now faces the prospect of having to spend billions more if he sticks with the same tactics.

The potentially fatal blow made against Mr Arnault's campaign yesterday came just 24 hours after the combative Frenchman claimed the merger was dead in the water, and claims that he could muster support from institutional shareholders to reach the 25 per cent blocking target. Analysts said it Mr Arnault would struggle to command more than 50 per cent of the vote.

Philip Yea, Guinness' finance director, said: "If we find a rock in the road we can drive around it. We have made sure we have done our homework and we have contingencies in hand to deal with Mr Arnault. An extra pounds 70m of stamp duty is a drop in the ocean compared to what we can gain from a merger of GrandMet and Guinness." Anthony Greener, chairman of Guinness, added: "This deal will go through. It will create pounds 4bn of extra value for our shareholders."

However, LVMH claimed that it could still scupper the deal. "We believe we can stop the deal with 25 per cent of the vote. It would give us the power to prevent the transfer of assets between GrandMet and Guinness among other things," a spokesman said yesterday.

GrandMet and Guinness yesterday also slammed Mr Arnault's alternative proposals to form a wines and spirits business, incorporating Moet Hennessy, the spirits subsidiary of LVMH, the IDV business of Guinness and the United Distillers arm of Guinness. The plan would involve the demerger of Pilsbury and Burger King, GrandMet's food manufacturing and fast food businesses, and the brewing arm of Guinness.

GrandMet and Guinness vehemently ruled out any imminent demergers, claiming they would destroy pounds 1.5bn of shareholder value. Analysts believe the total demerger bill could easily top pounds 2bn due to the loss of purchasing power economies in the group.

John McGrath, chief executive of GrandMet, said: "These proposals from LVMH will destroy shareholder value, primarily due to the US tax costs of separating these business. No board in their right mind would be prepared to do a deal that would destroy pounds 1.5bn of shareholder value and then have pay a premium for Moet Hennessy."

Mr McGrath accepted that the three way merger of the spirits business would bring extra cost savings of pounds 65m, over and above the pounds 175m that GMG Brands would create. But he denounced Mr Arnault's demands for a 35 per cent stake in a combined spirits group and cast aspersions on LVMH's projections that the spirits group would bring in extra revenue of pounds 65m. "Mr Arnault's proposals involve transferring pounds 130m of shareholder value from GMG shareholders to LVMH shareholders. The revenue benefits that LVMH predict are unrealistic according to our analysis," he said.

A fund manager at one of GrandMet's institutional shareholders said: "Mr Arnault will have to come up with something substantially better than he has put on the table so far to get enough support for his ideas. At the moment, we are clearly siding with the management and I expect most of the other large shareholders are too."

Mr Arnault has indicated he is willing to take a lower stake in a combined spirits group by swapping some of his Moet Hennessy assets and shareholdings in GrandMet and Guinness for a stake in the demerged food and brewing interests. He would also consider a watertight commitment from GMG Brands, the planned new name of the merged Guinness and GrandMet groups, to demerge businesses in the future.

GrandMet and Guinness are willing to push ahead with the merger without Moet Hennessy.

George Bull, GrandMet's chairman, said: "This is a bit like the tail wagging the dog. Moet Hennessy would only increase the size of the spirits portfolio by 3 per cent and the size of the wines and spirits business by 6 per cent. It is tiny relative to the deal we are talking about."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
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

Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
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