PARIS — Guinness PLC is set to buy a 34 percent stake in the wine and spirits business of LVMH Moet Hennessy Louis Vuitton in a complicated deal that will significantly reinforce Bernard Arnault’s control of the French luxury goods giant.
At the same time, Guinness will sell Arnault-controlled companies the 24 percent it indirectly owns in LVMH. In Paris, shares in LVMH tumbled 3.5 percent to 3,800 francs ($645) in reaction to the deal, while on the London Stock Exchange, Guinness shares rose 49 pence (73 cents), closing at 5.21 pounds ($7.76).
Under the terms of the deal, Guinness will pay 8 billion francs ($1.356 billion) for the one-third share in LVMH’s unlisted subsidiary, Moet Hennessy, which controls Hine and Hennessy cognac, and one quarter of French champagne output, with brands such as Dom Perignon, Moet Chandon, Veuve Clicquot and Pommery.
Guinness will also sell its 45 percent stake in Jacques Rober, the holding company that is LVMH’s largest shareholder with a 44.6 percent stake, and its 16.8 percent stake in Christian Dior for 11.8 billion francs ($2 billion).
These shares will be bought by three Arnault-controlled companies — Dior, SEBP and Le Bon Marche — with much of the money coming from a future capital increase. As part of the deal, LVMH will cut its direct stake in Guinness to 20 percent from the current 24 percent by no later than June 30, 1995.
“This greatly strengthens Arnault’s grip over LVMH. Jacques Rober is the key shareholder in LVMH, and now Arnault controls pretty well all of it. Plus, he didn’t pay much,” said Jean-Marie l’Home, an analyst with Paris broker BZW.
L’Home estimated that Arnault will pay Guinness the equivalent of 3,200 francs per share in LVMH, about 15 percent below its closing price Thursday. The deal will cut in half LVMH net indebtedness, which at the end of 1993 stood at about 16.5 billion francs ($2.797 billion), according to an LVMH spokeswoman.
The deal does not affect the executive relationship between Guinness and LVMH. Bernard Arnault remains a director of Guinness, while Tony Greener, chairman of Guinness, continues as a conseil d’administration of LVMH.
However, the deal seems certain to heighten speculation in Paris that Arnault may be about to embark on a major buying spree. The LVMH president bought a magazine and a financial daily in the fall and has made no secret of the fact that he’s looking at other titles. There have also been repeated rumors that Arnault is keen to buy Le Figaro, France’s largest selling daily.
“LVMH stock fell because shareholders are afraid what Arnault might do. He remains an unknown character to many, and people will be anxious about what he might do with all this cash,” analyst L’Home said.
In London, Guinness said the deal is aimed at strengthening its alliance with LVMH in the spirits industry, by giving the U.K. group a direct 34 percent holding in LVMH’s spirits subsidiary, Moet Hennessy, in exchange for an indirect 24 percent holding in the LVMH group as a whole, including its fashion interests.
Guinness’s Greener said the two groups have been discussing ways of building on their successful joint ventures in the distribution of wines and spirits, while allowing both of them to focus on their core businesses.
“For Guinness, this means focusing all resources on the development of its spirits business [United Distillers] and its beer business [Guinness Brewing Worldwide],” Greener said.
The price being paid is 204 million pounds ($303.96 million) higher than the 1.12 billion pounds originally paid by Guinness, the company said. The British group will take a 173 million pound ($257.77 million) exceptional charge in its 1993 accounts on its Rober and Dior stakes, mainly relating to goodwill previously written off as well as to the early repayment of some fixed-rate debt associated with the investments.
At the same time, Guinness will pay 902 million pounds ($1.34 billion) for the 34 percent stake in Moet Hennessy, leaving the group with a cash inflow of 416 million pounds ($619.84 million) after the two transactions.
He added that Guinness has also gotten something of a bargain, experiencing a significant capital gain on the stock.
“Guinness will now have a blocking minority in LVMH’s wine and spirits operations, with some excellent brands, which is all that really interests them,” he said.