LVMH merger row escalates on tax grounds

PUBLISHED : Saturday, 26 July, 1997, 12:00am
UPDATED : Saturday, 26 July, 1997, 12:00am

The war of words between French luxury goods maker LVMH Moet Hennessy Louis Vuitton, Grand Metropolitan and Guinness, intensified yesterday after GrandMet angrily rejected proposals for a three-way merger.

Food and drinks giant GrandMet, which wants only a GBP24 billion (about HK$310 billion) merger with drinks group Guinness, said a GBP1.5 billion tax loss could result from the merger.

It said that after having considered in detail the LVMH proposals, both the GrandMet and Guinness boards had 'unanimously concluded the LVMH demerger proposal would result in a substantial loss in shareholder value'.

LVMH wants to demerge Pillsbury, Burger King and Guinness Brewing, - in the GMG Brands structure envisaged by Guinness and GrandMet - and put LVMH's Moet Hennessey, Guinness' United Distillers and GrandMet's IDV together.

LVMH chairman Bernard Arnault said he could produce cost savings of GBP65 million more than the GBP175 million already identified in the GMG Brands deal.

Guinness and GrandMet said this was 'unrealistic', adding an immediate demerger would destroy rather than create value.

'The GMG Brands merger is on track,' they said.

LVMH, which has spent 12 billion francs (about HK$15.04 billion) building up a stake in GrandMet to 11.06 per cent, said: 'This is simply a padded assembly of their releases to date and as such adds nothing of value.

'The GMG merger proposal was cobbled together in a matter of days and is a short-term, incomplete solution to both companies' lacklustre performance.' GrandMet said it would be willing to consider any proposal which added value to GMG Brands: 'The terms are fundamentally inequitable, treating LVMH differently from other shareholders and transferring significant value to LVMH at the cost of other shareholders.

'LVMH would gain effective control of the spirits and wine business but would not pay a premium. In fact, a premium would be extracted from other shareholders.' LVMH's 66 per cent holding in Moet Hennessy was also unimportant, GrandMet said. LVMH also owns a 12.3 per cent stake in Guinness.

GrandMet claims the creation of GMG Brands would result in an immediate return of capital to shareholders of at least GBP2.4 billion.