THE proposed £23 billion sterling merger between Grand Metropolitan and drinks group Guinness could be held up by the "spoiling tactics" of French drinks and luxury goods company LVMH. The French group - which owns 14 per cent of Guinness - has also stated that the brewing interests should be separated out from any merger of the Guinness and Grand Met spirits businesses.
Shares in Guinness and GrandMet fell as LVMH, which holds an estimated 14.2 per cent stake in Guinness, said it would exercise its option to buy Guinness out of all their joint venture companies if the latter went ahead with its merger with GrandMet.
LVMH, makers of France's Moet & Chandon champagne and Hennessy cognacs, said it believed the merger, would create a "control event", that would allow it to exercise its option to "buy Guinness" interests in the joint ventures at their net asset value, although Guinness disputed this.
Guinness shares were down 18p at 581p, while GrandMet was down 12p also at 584p.
A spokesman for Guinness, famous for its stout and leading whisky brands such as Johnnie Walker, said the company is confident its timetable for the merger would be unaffected by the LVMH decision.
If the United States and European authorities let it through, then the merger could be consummated in three months, but if they choose to investigate it further, it could be eight months, he said.
The merger already faces opposition from drinks and entertainment group Seagram, which claims the union would create antitrust problems in the United States and Europe. French drinks group Pernod Ricard - owners of Irish Distillers - is also thought to be strongly opposed.
Clearly Guinness believes they have structured the deal in such a way that it does not constitute a change of ownership and LVMH disagree, but any legal dispute could delay the merger," said Mr Dermott Carr, analyst at Nikko.
Corporate lawyers at Guinness and GrandMet have pored over an agreement signed between Guinness and LVMH in 1994 to make sure it was not contravened by the terms of the merger.
The 1994 agreement provided that, if there was a change in the ownership of Guinness, LVMH would have the right to buy at net asset value, Guinness' interests in all their joint ventures and to keep - exclusive distribution on rights on Guinness brands for at least 10 years in those markets.
LVMH also has the option to repurchase the 34 per cent stake in Moet Hennessy owned by Guinness at a discounted price if this so called "control event" is triggered. In January 1994 - Guinness paid £902 million for the stake in Moet Hennessey, which chipped in £113 million to its 1996 full year profits.
"Guinness is not being taken over, it is a merger," the Guinness spokesman said.
The proposed deal is technically structured as a takeover of GrandMet by Guinness, although the latter is slightly smaller in terms of market value.
