A major hurdle in the way of the planned £24 billion sterling merger between drinks giants Guinness and GrandMet has been cleared, after a peace deal was struck with rebel French shareholder Mr Bernard Arnault of LVMH. As part of the agreement Guinness is to pay LVMH £250 million and the French company is to drop its legal efforts to block the merger.
The news will renew speculation in Dublin that the new entity would sell Guinness' 49.6 per cent stake in the drinks group Cantrell & Cochrane.
Allied Domecq holds the remaining 50.4 per cent of C&C, and the company has already voiced concerns about the merger.
The agreement between Guinness and LVMH means that, subject to approval from the regulatory authorities, the merger could be completed by January.
It brings to an end a sometimes acrimonious battle with Mr Arnault, chairman of LVMH, who has vigorously opposed the plans to merge Guinness and GrandMet to create GMG Brands. LVMH is a shareholder in both companies.
Last week he stepped up his campaign by launching arbitration proceedings in France in an effort to win compensation from Guinness.
LVMH has a string of joint ventures with Guinness, including ownership of Moet-Hennessy in which the French hold a 66 per cent stake.
Mr Arnault had argued that the GrandMet deal constituted a change of control at Guinness, allowing him to exercise an option to buy control of the joint ventures.
Some estimates claimed LVMH could have won up to £1 billion compensation if it was successful at the arbitration panel, but following yesterday's agreement Mr Arnault has agreed to drop his claim.
Although Guinness and GrandMet had been expected to push through their plans even in the face of Mr Arnault's opposition, the three-way peace deal has removed a major stumbling block.
Shares in Guinness and GrandMet jumped as a result, on relief that the prospect of a hefty compensation pay-out had been removed.
Under the terms of the new agreement, LVMH will terminate the arbitration proceedings launched at the International Chamber of Commerce.
Guinness will pay LVMH £250 million once shareholders have approved the deal, but the money will be refunded if the merger does not go ahead.
LVMH has agreed to support the merger and Mr Arnault will be appointed a non-executive director of GMG Brands.
Moreover, distribution agreements between Guinness and LVMH will be extended to include GrandMet brands - such as Smirnoff vodka - and will take in the USA, Japan and France.
In a joint statement, the companies said the new arrangements would bring annual savings of £20 million to GMG and similar savings to LVMH.
