The British drinks group, Allied Domecq, has 28 days from next Tuesday to decide whether to buy the 49.6 per cent of Cantrell & Cochrane owned by Guinness at a valuation prepared by C&C's auditors KPMG. Both Allied Domecq, which owns the other 50.4 per cent of C&C, and Guinness were presented with the KPMG valuation yesterday.
Both parties have refused to provide details of the KMPG valuation, but one source emphasised that KMPG was asked expressly to provide a valuation on the Guinness minority shareholding and not to provide a valuation on C&C as a company.
It is understood that the KPMG valuation of the Guinness stake includes a substantial discount on the value of C&C as an entity, reflecting the minority nature of the Guinness stake.
Industry sources have suggested that C&C, if floated on the stock market now, would be valued at around £650 million and that 49.6 per cent of the company would, as a result, be worth £320 million to £330 million. It is understood, however, that KMPG has put a very substantial discount on the Guinness stake to reflect its minority status and its resulting perceived lack of saleability to a third party. On this basis, it would seems that KMPG has valued the Guinness stake at substantially under £300 million.
Opinion is divided on whether Allied Domecq will spend such a sum to take 100 per cent control of a broadly-based Irish drinks company which hardly fits in with the British group's stated wish to focus on global spirits brands like its own Beefeater gin and Teachers scotch whisky brand.
If Allied Domecq declines to buy the Guinness stake in C&C at the KMPG valuation, then Guinness is free to try and find another buyer. Industry sources believe, however, that the prospects of finding a trade buyer for that stake are remote, with no international drinks group willing to invest a large sum of money in a company in which it has no management input or control.
Given the scale of the discount applied to the Guinness stake, sources have indicated that it is highly likely that Allied Domecq will exercise its option to take 100 per cent control of C&C - but is unlikely to retain ownership of the Irish company for very long.
The prevailing view is that, within a year of buying full control of C&C, Allied Domecq will de-merge C&C by floating a substantial portion of the equity on the Dublin and London markets. The scale of the discount applied by KPMG to the Guinness stake will make it attractive for Allied Domecq to subsequently sell all or part of a company in which it has no real long-time interest. "What is highly unlikely is that Allied Domecq will sell subsequently sell C&C to another drinks group," said one source.
If Allied Domecq does buy in the Guinness stake, then a subsequent flotation of C&C is likely "sooner rather than later," said one source. "They would want to take advantage of the strength of the markets and particularly the appetite in the Irish market for a profitable, cash-rich and broad-based drinks company like C&C. The drinks industry is a notable absentee from the Irish market since Irish Distillers was taken over," said a market source.
Since the Diageo merger between Guinness and Grand Met, there has been growing speculation of further mergers and international alliances in the drinks industry. Allied Domecq has been linked with various international groups, notably Seagrams, but nothing happened, while the British group withdrew from the bidding for the Dewar's scotch brand that Guinness was forced to sell off as part of the EU approval for the Diageo merger.
It has made it clear, however, that it is willing to join forces with other international drinks groups, although chairman Sir Christopher Hogg, has conceded that finding alliances is difficult.
