Guinness and GrandMet clear the Brussels hurdle

Guinness and Grand Metropolitan yesterday cleared one of the biggest hurdles in their bid to create the biggest drinks company in the world by agreeing to European Commission demands to dispose of two whisky brands. Andrew Yates finds that the drinks groups appear to have got off lightly.

The European Commission yesterday gave the green light to the pounds 24bn merger between Guinness and GrandMet but forced the UK drinks companies to dispose of one of their main European whisky brands.

Guinness and GrandMet, to be called GMG Brands, has agreed to EC demands to sell its Dewar's brand in Europe within 15 months to satisfy concerns that it would have a dominant position in the Spanish and Greek whisky markets.

The move has fuelled speculation that the US Federal Trade Commission (FTC), which is also investigating the deal, may also call on GMG to sell Dewar's in the US. The FTC is also likely next week to sanction the merger subject to concessions, according to industry sources.

One drinks analyst said: "It is highly unlikely that the US would refuse to sanction the deal after the EC has waived it through."

GMG has also been called on to dispose of Ainslie, one of the smaller whisky brands in its portfolio, popular in Belgium and Luxembourg, and sell some distribution interests in Ireland.

Analysts believe the European disposals will cost GMG around pounds 10m a year in profits. However if the drinks group is forced to dispose of Dewar's in the US it could hit profits by pounds 50m.

That said, GMG could raise more than pounds 500m from the sale of the Dewar's brand around the world. Allied Domecq, Highland Distilleries and Seagram, the Canadian drinks giant, are likely bidders.

GMG is thought to have had to give up more than it originally thought. The drinks group had proposed selling a collection of secondary brands including VAT69 and White Horse as well as Ainslie, according to sources close to Brussels. But the EC is believed to have demanded greater concessions after rivals lobbied for more important brands to be sold.

Dewar's is the best selling whisky in the US, ahead of GMG's other brands such as Johnnie Walker and J&B. It is also the third biggest seller in markets such as Spain and Greece. Guinness sells 2.7 million cases of Dewar's around the world.

However most analysts believe that the EC could have demanded much greater concessions. One analyst said; "GMG has been lucky to get off relatively lightly. The group must be very relieved."

Clearance from the EC comes just days after GMG patched up its differences with Bernard Arnault, the head of French luxury goods group LVMH, who had been the merger's most vociferous opponent. Mr Arnault has now agreed to back the deal and set up distribution agreements with GMG in return for pounds 250m in cash.

George Bull, chairman of GrandMet and Guinness's chairman, Tony Greener, said in a joint statement yesterday: "We are pleased that we were able to put forward proposals that met the approval of the Commission. The regulatory approval in Europe is a substantial step forward to achieve the creation of GMG Brands."

Investors reacted favourably to the news, pushing GrandMet's shares 16p higher to 625p and Guinness by 17p to 625p.

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