Grandmet, Guinness In $32.5 Bn Merger

Grand Metropolitan Plc and Guinness Plc yesterday announced a merger worth more than 20 billion ($32.5 billion) to create the worlds seventh largest food and drinks company, GMG Brands.

The merger will also form the worlds leading branded spirits and wine company with combined spirits sales of over 100 million cases a year, bringing together brands such as GrandMets Smirnoff vodka and Cinzano with Guinness-owned Johnnie Walker whisky and Gordons gin.

It also unites GrandMets strong US food interests through Burger King and Pillsbury with Guinness brewing operations which include its famous stout ale.

Shares in the two companies surged after the surprise news as investors and analysts looked to cost savings from the deal as well as a planned one-off cash handout to shareholders of 60 pence per share worth some 2.4 billion.

 

GrandMet shareholders will own 52.7 per cent of GMG under the deal, which is structured so that Guinness shareholders retain their shares in the renamed company, while GrandMet shareholders will receive one GMG share for every GrandMet share they hold.

On Fridays share prices, the combined value of the group was 20.61 billion, making it the seventh largest food and drinks company worldwide and Britains eight largest quoted company.

But the value of the deal was boosted to around 23 billion in early Monday trading as GrandMet shares rose 57 pence to 572 after touching 585 and Guinness shares jumped 67 pence to 583-1/2 after also hitting a high of 585.

We have brought together two highly successful British-based companies which own some of the worlds leading consumer brands, creating a powerful group comprising four world class branded businesses, said George Bull, GrandMet chairman.

He will initially chair the new group jointly with Tony Greener of Guinness, but will retire as planned in July 1998, leaving Greener as sole chairman.

GrandMets John McGrath will be chief executive, with the rest of the board made up of a balance of directors from both firms.

Bull told reporters the move would, create a combined spirits and wine company which will truly be a world leader so it will be able to grow faster at that stage than either would be able to do on its own.

If you put the whole lot together then you achieve a much faster growth rate together than either could achieve on their own, he said.

MG Brands four divisions will be United Distillers and Vintners, the combined spirits and wines business, Pillsbury, Burger King and Guinness Brewing Worldwide.

The merger gives Guinness an increased interest in North America through GrandMets Pillsbury and Burger King food divisions, while GrandMet shareholders will benefit from the Guinness spirits business in emerging markets.

Pilsbury brands include Green Giant vegetables and Haagen-Dazs ice cream.

Guinness stout is one of the wo rlds most widely distributed beers, brewed in 50 countries and sold in about 150.

The companies said the merger, which needs approval from regulatory authorities as well shareholders, would generate cost savings of about 175 million a year in the third year of trading by integrating the sales force around the world, pruning back at head offices and savings in production.

The companies did not detail possible job losses, but Guinness chairman Tony Greeener told BBC radio it was possible there would be around 2,000 job losses out of a combined workforce of 85,000.

The losses wold be distributed around the world and take place gradually over three years, he said.

Total costs of achieving these savings are expected to be some 375 million, of which 300 million would be cash and the balance accounting writedowns.

GrandMet brought forward its first-half results to coincide with the merger news. Pre-tax profit rise by 3.5 per cent to 471 million before charges.

Guinness, GrandMet open higher

Shares in Guinness Plc and Grand Metropolitan Plc were seen opening higher on Monday after the two surprised the market with plans for a merger.

Its a bit early to say but I think it could be good news for both shares, I think it will be well recieved, said one dealer. Another senior dealer said both stocks could go some 50p better at the outset.

The two said they would distribute 60p per share, or a total of 2.4 billion, to their shareholders. Grand Met shareholders will hold 52.7 percent of the new company. The firms promised annual savings of some 175 million stg as a result of the merger.