Lvmh Unveils Mega Drinks Merger Plan

French drinks and luxury goods firm LVMH Moet Hennessy Louis Vuitton on Wednesday unveiled a plan for a mega drinks merger with British group Guinness Plc and Grand Metropolitan Plc

The new company, to be listed in Paris and London, would have had proforma sales of 7.4 billion stg ($12.4 billion) for the year 1995/1996 and would be a world leader with 19 of the 100 best known wines and spirits brands.

Guinness and GrandMet said they would reply on Wednesday afternoon.

LVMH shares jumped on the statement, which had been expected after LVMH chairman Arnault had meetings with Guinness head Tony Greener and George Bull of Grand Metropolitan earlier this month.

 

At 1052 GMT, LVMH was up 2.15 per cent at 1,613 francs. Guinness was up 10.5 pence at 617 and GrandMet was 9.5 pence higher at 613-3/4.

The two British companies, in which LVMH has stakes of 14.2 and 6.4 percent respectively, had in May announced a separate plan to merge a wider group of activities, creating a company called GMG Brands.

LVMH proposes the merger of its Moet Hennessy cognac and champagnes business with the United Distillers (UD) division of Guinness and International Distillers & Vintners (IDV) of Grand Met.

LVMH would have a stake of some 35 per cent in the new grouping, in exchange for its 66 per cent stake in Moet Hennessy and its holdings in Guinness and GrandMet.

Other shareholders in Guinness and GrandMet would get 60 pence per share, shares in the new group as well as shares in three new listed companies that will hold respectively the food, fast food and beer activities of the two British groups.

LVMH added that if its plan was adopted, arbitrage concerning a buyout of Guinnesss stakes in joint-ventures of the two companies as well as the 34 per cent in Moet Hennessy would be dropped. LVMH was claiming that the May merger plan was a control event which allowed it to buy back the stakes from Guinness at a discount.

Arnault said in the statement that his plan offered a number of advantages for shareholders over the GMG Brands plan. He said there would be synergies between the joint-venture companies of Guinness and LVMH with IDV units.

He said there would be a redistribution of brand portfolios between companies belonging to LVMH, UD and IDV.

He also said that there would be bigger cost savings, particularly in headquarter costs.

The product line-up (of Guinness and GrandMet) will be enlarged with the introduction of high-end products (champagne and cognac) and a wider geographical coverage, mainly in Asia, which will allow an increase in sales and margins of the products, LVMH said in the statement.

LVMH added that the creation of new companies for wines and spirits, food, fastfood and beer would create indepedently listed companies which will not suffer from a discount applied to shares of a conglomerate uniting all these activities.

Arnault has an indirect 20 percent stake in LVMH, created in 1987, through a cascade of companies. Its brands include Moet & Chandon and Pommery champagnes and Hennessy cognacs.

Guinness has, apart from the epynomous dark stout, the Johnny Walker and Dewar whisky brands while GrandMet has Smirnoff vodka, J&B whisky and Baileys cream.

The separate food unit under LVMHs plan would include GrandMets U.S. food arm Pillsbury which has such brands as Green Giant. The fast food unit would mainly include the Burger King hamburger chain of GranMet while the brewing unit would produce the dark stout. ($ = 0.596 British Pounds Sterling)