By and  on January 21, 1994

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.

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