LVMH and Guinness: more than a fantasy?

There's not much happening, and it is still the silly season, so invention seems the only course. Here's the game - fantasy takeover. The rules hardly need explaining. The idea is merely to come up with a credible takeover proposal. The client in this case is Bernard Arnault, chairman of the French luxury goods giant LVMH. He owns more than 20 per cent of Guinness (not fantasy this, he really does) and he's very unhappy with his investment. Most of this unhappiness is nothing to do with Guinness. It's to do with the strength of the French franc, for when Mr Arnault first bought into Guinness he was paying 10 francs and more for every pound. Today he gets only 7.5 francs a pound for his investment.

But his unhappiness is more than this. In recent years Guinness shares have severely underperformed and though nobody disputes that this is anything other than a well managed and highly effective company, there is no doubt that its main products and markets are mature ones, that the company isn't really going anywhere. So what can Mr Arnault do about it? The obvious answer is to take advantage of the strength of the franc while it lasts and bid for the company.

When LVMH first linked with Guinness under Sir Anthony Tennant, this would have been an impossibility, for Guinness was by far the larger of the two companies in terms of market capitalisation. Today the positions are reversed. Furthermore, Mr Arnault has tidied up his empire and many of the doubts that existed in capital markets over his allegedly Maxwellian tendencies - a penchant for moving assets around the empire without regard for the interests of outside shareholders - have fallen away.

From the retiring, very private tycoon he once was, Mr Arnault is transformed into France's most high-profile businessman. He's close to President Chirac, who's a sucker for Mr Arnault's highly potent mix of top French fashion and drinks. Hardly a day passes when Mr Arnault is not in the newspapers. He would have no difficulty in raising the necessary finance to bid for Guinness.

The deal could in any case be made virtually painless by selling Guinness's brewing interests to the likes of Anheuser-Busch. Taking into account the proceeds of this sale and his existing Guinness stake, Mr Arnault could probably acquire control of the core scotch whisky and spirits business for an outlay of not much more than pounds 5bn. Just fantasy? Well maybe, but credible enough to have already earned investment bankers a fee or two.