Diageo to start trading tomorrow after US clears deal

The pounds 24bn mega-merger of Guinness and Grand Metropolitan cleared its final hurdle yesterday with the approval of US competition authorities. The condition is that Diageo must sell its Dewar's Scotch whisky brand and Bombay gin. Nigel Cope, City Correspondent, reports.

The deal's clearance by United States Federal Trade Commission means that shares in both Guinness and Grand Metropolitan will cease trading at today's close. Following the approval of the High Court which also came yesterday, shares in Diageo, the newly merged entity, will start trading on Wednesday.

Diageo has six months to sell the Dewar's and Bombay Sapphire and Bombay gin brands in what is considered to be the largest ever divestment ordered by the FTC. Each brand will be sold to a single purchaser with Credit Suisse First Boston, the investment bank, appointed to handle both deals.

A queue of buyers is expected for Dewar's, which is the market leading scotch whisky in the US. It sold 2.7 million cases worldwide last year including 1.5m of the 9m cases sold in American. Likely buyers are expected to include Allied Domecq, Seagram and Barcardi-Martini. The price is expected to be around pounds 600m-pounds 700m.

The sale of Dewar's was expected to be a condition of the merger's clearance as Guinness and Grand Met also control J&B and Johnnie Walker, America's second and third-ranked brands. The FTC's decision mirrors that of the European competition authorities which told Guinness in October that it would have to give up the brand in Europe. Allied Domecq repeated its interest yesterday: "It's a brand that would be of interest to us but not at any price."

The Bombay Gin brands, which have been one of the fastest growing parts of Grand Met's drinks portfolio will fetch pounds 50m-pounds 100m. The brands sold 600,000 cases worldwide last year, just over half of which were in the US. Diageo already controls Gordon's and Gilbey's gin as well as Tanqueray, America's leading premium imported gin.

George Bull and Tony Greener, chairmen of Grand Met and Guinness respectively, said they regretted the sale of the two brands but pointed out that it was an achievement to take the deal to fruition just seven months and five days since it was announced.

Diageo will rank as Britain's eight largest company and the world's largest spirits group.