Seagram ready to oppose Guinness merger worldwide

SEAGRAM of Canada, the world's second largest spirits company, yesterday said it would oppose the planned merger of Guinness and Grand Metropolitan in representations to competition authorities around the globe.

Mr Robert Matschullat, Seagram's chief financial officer, said United Distillers & Vintners, the proposed joint Guinness/GrandMet spirits company, would control half of the Scotch whisky market worldwide. In the US, the largest and most profitable spirits market, he said UDV would sell three out of every four bottles of standard scotch, and one in every two bottles of premium gin.

"This combination would create serious antitrust problems in the US, Europe, and we believe probably elsewhere," he said. "I don't know whether they think the regulators are asleep."

If the deal were allowed, the parties were likely to be ordered to sell spirits brands representing a large part of their business, he said.

Analysts said the strength of the reaction from Seagram was a measure of the threat to its business from the deal.

According to independent research from Datamonitor, Seagram had spirits sales of $5.1 billion (£3.37 billion) in 1995, just $100 million less than GrandMet. But combined, GrandMet and Guinness would have enjoyed annual spirits sales of some $9.2 billion, far ahead of any rival.

Mr Ron Littleboy, drinks analyst at Nomura, said: "This company combination is so big and so potentially powerful that every other major spirits company must be quaking in its boots wondering what it should do."

Analysts said Allied Domecq, the British drinks company which ranked third after Seagram in 1995 with sales of $4.6 billion, would also be threatened.

Allied is expected to give its views today, along with profits for the first half of the current year.

Alarm within the drinks industry was tinged with a measure of hope that UDV would use its newfound muscle in the market place to increase prices, allowing rivals to achieve bigger profit margins in its wake.

"I would think they are going to be in a position to dictate prices a little more than the industry has been able to do in the past," said one executive.

Rivals were also hoping that UDV might be obliged by regulators to off load some brands, or chose to do so to maximise the effect of advertising.

Mr Matschullat said Seagram would be a potential buyer. Once its declared intention of selling its $2.5 billion stake in entertainment group TimeWarner was achieved, Seagram would be undergeared, with net debt of just $1 billion against a market capitalisation of $15 billion.

Analysts suggested a merger of Seagram and Allied might be possible. Indeed, many brokers believe that the Guinness/GrandMet merger, if allowed, could trigger a fresh round of consolidation worldwide, with MoetHennessy, Bacardi, Pernod Ricard, Remy Cointreau, American Brands and BrownForman all seeking to reinforce their positions.

Mr Matschullat said: "I don't think it changes our strategic position very much." Achieving shareholder value was more important than scale, he said.