IDG joins objectors to Guinness merger plan

Irish Distillers is one of three international drinks companies which have objected to the European Commission to the proposed £25 billion merger of Guinness and Grand Metropolitan.

A spokesman for the Pernod Ricard-owned Irish Distillers Group (IDG) made no comment, but it is understood that IDG, together with Allied Domecq and Seagrams, voiced its objections to the merger at a private meeting last week of the EU Mergers Task Force.

The objections by the three drinks groups to the merger are another major hurdle that both Guinness and GrandMet will have to overcome. Already, the two British groups face strong objections from LVMH's chief executive, Mr Bernard Arnault, who has proposed a three-way merger of each company's spirits brands.

All three companies are expected to formally object to the merger within the next few days, citing the impact on competition of the link-up of Guinness and GrandMet. The European Commission now has until October 27th to make a final decision on whether the merger should be allowed to go ahead in its entirety or in part.

It is understood that IDG's objections to the merger are not related to the Irish market, where the company enjoys a dominant position, but to the impact of the merger on spirits markets in Europe, where IDG has invested heavily in building up its core Jameson and Bushmills brands.

However, some industry sources have contrasted IDG's current concerns about competition with its own actions some years ago in attempting to buy out its sole competitor in the Irish whiskey industry, Cooley Distillery. That takeover was vetoed by the Competition Authority and Cooley has continued to trade successfully, albeit on a tiny scale compared to IDG.

The Commission has already voiced its concerns that the merger would give the proposed GMG Brands a dominant position in some international markets, with a near-monopoly of the Scotch whisky market in Europe. There is speculation that, if the EU does give the merger the go-ahead, it will attach stringent conditions, including the sale of brands and other assets by both Guinness and GrandMet.

The objection by Allied Domecq also places a major question mark over its continued partnership with Guinness in the Irish drinks group Cantrell & Cochrane. Allied Domecq has 50.4 per cent of C&C and Guinness has 49.6 per cent, but industry sources believe it would be virtually impossible for the two drinks groups to co-exist as shareholders in C&C, given Allied Domecq's opposition to Guinness's merger plans with GrandMet.

A spokesman for Allied Domecq would make no comment on the relationship of the two companies through C&C, but there has been speculation that Guinness might be forced to sell its share of C&C if the merger is to go ahead. While it is understood that Allied Domecq has first option to buy the C&C stake, many in the industry believe that it would balk at paying the £300 million-plus that the Guinness shareholding would involve.

A more likely scenario is the sale of the Guinness stake to institutional investors and the flotation of C&C on the stock market, with a starting capitalisation of more than £600 million.

Market sources believe that institutional investors would enthusiastically support a sale of the Guinness stake and subsequent C&C flotation. C&C has a strong profits record and, with a substantial cash flow, has been able to diversify out of its domestic soft drinks and alcoholic drinks business. The Irish stock market has no large drinks company for investors and C&C would more than adequately fit that bill.

The group's Irish management has maintained a discreet silence on the apparent differences between the two big shareholders. Market sources believe, however, that the management would enthusiastically support an eventual flotation of the company, as it would give C&C the base to buy up businesses being sold off by the drinks industry giants as the industry rationalises and consolidates.