Guinness rules out Grand Met bid

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The Independent Online
Guinness, the drinks giant chaired by Tony Greener, yesterday signalled its readiness to take radical action to revive its flagging earnings growth after admitting that it had looked at launching a pounds 13.2bn megabid for rival Grand Metropolitan.

A move of such size would revive memories of the controversial pounds 2.4bn takeover of Distillers 10 years ago and represent one of the biggest bids ever seen in the UK.

The company in effect squashed the plan put forward by its merchant banking advisers Lazards, which would have involved taking on more than pounds 10bn of debt and selling off the historic stout-brewing operation to create the world's biggest spirits business. But the fact that a deal of this size was considered will suggest to many in the City that Guinness is ready to move up a gear in tackling its stagnating traditional drinks markets and recent management problems in its spirits division.

Guinness yesterday poured cold water on any suggestion it was ready to go for Grand Met, a move that has been rumoured for some time. It said that, as with other large companies, it routinely analysed possible developments in the industry. "It regrets that documents relating to one such hypothetical possibility should have been subject to unauthorised publicity. Guinness has no intention of making a hostile bid for Grand Metropolitan or demerging or selling its brewing interests."

Gerald Corbett, finance director of Grand Met confirmed no takeover or merger talks had taken place. He dismissed the Lazards plans as part of normal business life. "Merchant banks' waste paper baskets are full of similar proposals", he said. "We're never complacent, but we're currently in pretty good shape. We're in the middle of the best year ever and all the things we've done over the past few years are bearing fruit."

The Lazards proposals were thought to have been discussed with senior Guinness executives at the end of last month, but it appears not to have taken them long to reject them. A number of formidable obstacles stand in the way of such a deal, not least of which would be the enormous scale of the debt initially involved in buying Grand Met. One insider said the forecasts involved in the plans "tend to suggest the numbers are too big. It couldn't be done."

Much of the proposed pounds 10.6bn cash cost of the bid, dubbed Project Reflection, would have been recouped by selling off assets, including Guinness's brewing division, which is valued by Lazards at pounds 3.7bn. Other disposals would have comprised Grand Met's food division, including Pillsbury doughs to Haagen-Dazs ice-cream, expected to fetch around pounds 5bn, and the Burger King to Pearle eyecare retailing businesses, valued at pounds 2.5bn.

Apart from huge capital gains tax liabilities on these sales, Grand Met's valuation of brands on its balance sheet could have created problems for potential US bidders, who would have been forced to depreciate them over a period of years, depressing earnings.

There would also have been political hurdles. Merging Guinness's Johnnie Walker, the world's biggest selling whisky, with Grand Met's J&B, the second-biggest, could have given the combined group 40-50 per cent of US and UK market, on some estimates.