A MAJOR row has broken out between Guinness and Bernard Arnoult, whose LVMH luxury goods group is the drinks company's largest shareholder, has put the proposed $23bn merger with Grand Metropolitan under threat.
The LVMH Moet Hennessy-Louis Vuitton champagne, cognac and top of the market luggage company says that it has the option to buy at net asset value the Guinness interests in their joint venture distribution agreements. In addition, it has the right to buy the 34% stake in Moet Hennessy at a discounted price.
Guinness paid #902m for it in 1994 and the stake contributed #113m to last year's group profits.
The original agreements signed with Guinness in the eighties said that LVMH has these purchase rights in the event of certain changes in the ownership of Guinness, involving a competitor such as GrandMet.
Mr Arnault says he considers the merger has become a ''control event''.
It also said that it intends operating the joint ventures separately and would market Guinness products on an exclusive basis for at least 10 years in the key markets of the United States, France and Asia-Pacific.
Although Guinness has some wholly-owned distribution companies, the joint venture operations with LVMH are much more important. Mr Arnault, who is being advised by BZW, is a non-executive director of Guinness but he was not told about the proposed GrandMet deal until it had been agreed.
He strongly protested in public and instead has argued that the Guinness beer division be hived off and the spirits activities merged with those of LVMH. He has since advocated that the spirits activities of the three companies now be merged.
Market reaction was to lower the Guinness share price by 14p to 582p, while GrandMet eased 15!sp to 581p with some analysts looking for a Guinness price as low as 550p-560p.
Guinness was adamant that there has been no control event through the merger as it has taken the advice of five outside law firms as well as its own in-house solicitors. These include Theodore Goddard, Norton Rose, SJ Berwin, Dewey Ballantine and Cravath Swain & Moore.
A Guinness spokesman said he was confident that the control event clauses will not be triggered as Guinness is not being taken over but is in a merger.
If LVMH were to win then it would have the distribution rights for United Distillers' products such as Johnnie Walker in its all-important markets of the US and Asia where Guinness is increasing its marketing spend.
There are provisions in the amended agreement which was signed in 1994 for any disputes to go to arbitration instead of going to court.
The proposed merger has already been under severe attack from Seagram and it has to get the agreement of regulators in both Europe and the US because of the dominant position the group would have in whisky in particular in America and some countries such as Spain, Greece and Belgium.
Earlier this year, Mr Arnault sold 135 million Guinness shares at 410p and was obviously discomfited when they reached 620p after the GrandMet deal was announced.
Even ahead of the LVMH announcement, analysts were speculating that there would have to be changes to meet the regulators demands. They are now suggesting that Mr Arnault who will end up owning 7.1% of GMG Brands - as the new Guinness-GrandMet company will be called - may demand a very substantial cash payment to LVMH as the price of his agreement.
n SCOTTISH shareholders own a third of Wolverhampton & Dudley Breweries. The Scottish influence is compounded by the chairman being David Miller, who is also chairman of the Scottish Vocational Educational Council, while the finance director Ralph Findlay hails from Edinburgh.
Wolves prides itself on local knowledge in its trading areas in the Midlands and Wales and also in the north-east of England where it owns Camerons.
Profitability was held back in the first half because of high capital investment including the purchase of 96 pubs from Scottish Courage and renovation of half of those so that pre-tax profits just 3.2% to #28.8m.
However, the second half will benefit from higher margins helped by a 5p per pint increase even if Banks's at 130p is still one of the cheapest beers in the UK. Full-year profits should increase by #3m to about #46m.
The interim dividend has been raised 10% to 6.6p.
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