Guinness's swift and firm denial confirmed two points. First, that Guinness will only look to a deal where the numbers stack up and shareholders can be assured of solid gains. Secondly, and given the difficulty of finding such a deal, Tony Greener, the chairman, and his team remain committed to organic growth - a message he has assiduously conveyed to institutions and analysts in the past few months.
That is reassuring for investors who have had to endure a low level of growth in recent years that has left the shares in the doldrums. The shares have, in effect, been suffering from the hangover after the party. The City had cranked up expectations for the group to unrealistic heights, driving the shares to a peak of 629p in 1992. Tougher and more increasingly competitive trading conditions demanded a correction that was delivered in no uncertain terms.
Profits have only inched ahead in recent years. Indeed, pre-tax profits in 1995 of pounds 876m were lower than the pounds 900m the group raked in in 1991.
But there are success stories aplenty within the group. Johnnie Walker Red and Black Label have had an astonishing run of success and have been the motor for much of the spirits arm's success. Last year, it sold a record 11.2 million cases of the stuff, to make it the world's biggest spirits brand as measured by retail sales - and 20 per cent ahead of its nearest competitor. Sales of spirits to emerging markets now account for 40 per cent of group spirit sales.
But the group is frank about the difficulties besetting the international spirits market. While emerging markets have come on strongly, other, once favoured markets have gone into reverse. Exports of costly up-market brands to Japan have been savaged by that country's economic crunch. Sales in Australia have also been difficult, although some of the slack has been offset by increased uptake in Thailand and Taiwan, where Johnnie Walker has achieved a compelling lead over its rivals.
Overall, the market for spirits remains in reasonable health. But there is precious little evidence of any strong recovery in volumes and prices, which remain under the cosh in the present disinflationary era. And while consumers become ever-more price-conscious, health faddism has eroded some of the company's strengths in its more traditional markets. Guinness's strength is its ability to outperform its competitors through good marketing and clever re-balancing of its portfolio to improve margins.
In brewing - principal product, the world-renowned stout - a similar story emerges. While there have been some success stories in emerging markets, progress in sales of stout has been slow and steady rather than spectacular. At Cruzcampo, its Spanish brewer, initial problems have been sorted out, but the company now has to suffer Spain's enfeebled economy, where unemployment is running at over 20 per cent.
Overall, however, the Guinness brand portfolio, stuffed to the gunnels with good things, remains the envy of its rivals. As well as Johnnie Walker, it boasts Gordon's and Tanqueray gin, Bell's and Dewar's White Label whiskies - and the eponymous Guinness. Even with pricing pressures, Guinness still outperforms much of the competition. In 1995, its brands grew 0.5 per cent worldwide, compared with a 1.2 per cent fall for the top 100 brands, according to figures from market research group Impact International.
For organic growth, read marketing, where Guinness is working hard on new ways to promote its drinks. Unlike other brewers, Guinness turned its lack of a freehold estate to its advantage. In partnership with other landlords, it devised and backed the successful Guinness Irish pub concept. Over 950 of these have opened around the world in places as far afield as Iceland and Abu Dhabi as well as across continental Europe.
So is the glass half full, or half empty? With a company like Guinness, long-term prospects have to be seen as excellent. As well as brand quality, a strong balance sheet is supported by tremendous cash flow. Last year, the group reduced borrowings by pounds 184m, to pounds 1.23bn, with free cash flow of pounds 484m. That financial strength gives the group all the confidence that it needs to keep all its options wide open.
At present, however, the shares offer excellent value. Having seriously underperformed the market, the froth has evaporated. What is left is a share on an above-average yield that is flinging off cash. If you want short-term excitement, the party is over. But as a steady performer, the shares will prove a sensible choice for your money.
Share price 470p
Prospective p/e 13.9
Gross dividend yield 4.0%
Year to 31 Dec 1994 1995 1996* 1997*
Turnover pounds 4.69bn pounds 4.68bn pounds 4.802bn pounds 5.008bn Pre-tax profits pounds 1.045bn pounds 990m pounds 963m pounds 1.032bn
Earnings per share 31.6p 32.9p 33.7p 36.5p Dividend per share 13.8p 14.9p 16.4p 18.0p
*NatWest Securities forecasts