The agreement by Guinness Ireland to cut its stake in Cantrell & Cochrane (C & C) from 49.6 per cent to a maximum of 10 per cent has cleared the way for Guinness to complete its £33 million acquisition of the outstanding 70 per cent of United Beverages Holdings (UBH).
The Competition Authority has sanctioned the UBH takeover subject to Guinness reducing its stake in C & C to the 10 per cent maximum. Previously, the authority had said that it intended to block the UBH takeover by Guinness.
The 50.4 per cent shareholder in C & C, Allied Domecq, has first option to buy the Guinness shareholding and C & C has appointed KPMG to carry out a valuation on the drinks group which Guinness can then present to Allied Domecq under the first option arrangement.
Market sources believe that, given C & C's excellent profit record - profits of £52.3 million last year and huge cash-flow generation - it is unlikely Guinness's 49.6 per cent stake will be valued at less than £350 million and possibly at more than £400 million.
C & C chief executive Mr Tony O'Brien said that while Guinness was only obliged to reduce its stake to 10 per cent, it was likely to sell the entire holding. "My view is that Allied Domecq will buy the Guinness shareholding," said Mr O'Brien. C & C management is thought, however, to favour the flotation of C & C on the Dublin and London stock markets at a likely valuation of about £800 million.
Industry sources have indicated that Allied's ability to do a £350 million£400 million deal on C & C will be largely dictated by whether it is successful in buying the Dewar's scotch whisky brand that Guinness has been forced to sell as part of the EU approval for the merger with Grand Met to form Diageo.
Dewar's is expected to be sold for at least £600 million sterling, and Allied Domecq is competing with the likes of Seagram, Pernod Ricard and Bacardi for the brand, the biggest-selling scotch brand on the American market. If Allied Domecq is successful, industry sources believe a bid for the Guinness stake in C & C is much less likely.
The situation will become clearer by the end of May - the date set by American regulators for Guinness to sell Dewar's, even though the EU deadline for the sale only expires early next year.
If, however, Allied Domecq does walk away from a bid for full control of C & C or rejects the KPMG valuation, Guinness has various options, of which a management buy-out or flotation of C & C are the most likely. The balance of opinion in the drinks industry is, however, that Allied Domecq will pay up for the Guinness stake and that the stock market flotation favoured by the Irish investment community is unlikely.
Guinness's success in getting Competition Authority approval for its full takeover of UBH is noteworthy as it was secured despite strong opposition from Irish Distillers, Murphy Brewing and three wholesaler groups, all of whom lodged objections with the authority. The authority said yesterday that the assurances given in relation to the C & C shareholding and board representation satisfied the concerns raised in its earlier statement of objections to the deal.
Guinness already has a 30.4 per cent stake in UBH and has offered £33 million to buy out the minority shareholders - £12.9 million to James Crean, £8.6 million to Fyffes and £11 million to the Byrne and Doyle families.
