Guinness could be forced to sell its shareholding in C&C

GUINNESS may be forced to sell its 49.6 per cent stake in Irish drinks group Cantrell & Cochrane, if its merger with GrandMet to create GMG Brands is completed.

Allied Domecq holds the remaining 50.4 per cent of the C&C and yesterday Allied Domecq chairman, Sir Christopher Hogg, hinted that his company may lodge a complaint against the proposed merger with the regulatory authorities.

In such a situation, industry sources believe it would be virtually impossible for Guinness and Allied Domecq to co-exist as shareholders in C&C, especially as GMG Brands would be distributing spirits in Ireland which would be in direct competition with the Allied Domecq brands distributed by C&C.

"It is hard to see how GMG could stay as a shareholder in C&C in that situation," said one industry source. He added that, in any event, GMG will probably be required by the European Commission to sell some brands and businesses if it is get approval for the merger.

C&C chief executive Mr Tony O'Brien declined to comment on the possible clash between his two shareholders. He did state, however, that the proposed merger between Guinness and GrandMet would undoubtedly have major implications for the drinks trade worldwide, and could present companies like C&C with the opportunity to buy up businesses being sold off by the industry giants as the industry rationalises and consolidates.

Allied Domecq is understood to have first option to buy if Guinness does decide to sell the 49.6 per cent of C&C. Industry sources believe, however, that Allied Domecq - which could be struggling to compete against a giant like GMG - would be reluctant to pay the £300 million that the Guinness 49.6 per cent stake would fetch based on the sort of ratings placed on drinks companies.

What seems more likely is that Allied Domecq would retain its controlling interest in C&C but would be content to see the Guinness shares sold to institutional investors and C&C become a public company on the Irish stock market with a value of around £600 million.

Market sources believe that there would an overwhelming welcome for C&C on the Irish market if the Guinness shares are floated and C&C becomes a public company. C&C is a hugely profitable company and has the advantage of being in a sector absent from the Irish market since Irish Distillers was acquired by Pernod Ricard.

Ironically, C&C was originally part of a joint venture with GrandMet, GC&C Brands, which made the initial takeover bid for Irish Distillers before being forced out of the joint venture by the European Commission. Pernod subsequently beat off competition from GrandMet for Irish Distillers after a long drawn-out takeover battle which went as far as the Supreme Court.

In the year to last August, C&C had pre-tax profits of £43.1 million on £342 million - split 68 per cent between alcoholic drinks and 32 per cent non-alcoholic drinks. The group has net cash of £39 million at the end of last August and said at the time that it was actively looking for acquisitions.

Given the strength of its cash flow - £32 million - C&C has the capacity to make substantial acquisitions and said at the time of its results that it expected to make a £50 million acquisition in the current year. Privatisations in eastern Europe are presenting opportunities for acquisition.

Given its record, there seems little doubt that institutional investors would welcome C&C and even the prospect of spending £300 million is unlikely to dissuade investors from taking up C&C shares being sold by Guinness.