GrandMet, Guinness Find Spirits Lifted by Deal

It has the makings of a raucous party: The owner of Burger King and Bailey’s Irish Cream plans to merge with the producer of Guinness Stout and Johnnie Walker scotch.

The mixture of Grand Metropolitan and Guinness, announced Monday, would form an industry giant worth $34 billion. Named GMG Brands, the new company would rank, by market value, as the world’s seventh-biggest food and beverage company, with 85,000 employees.

Party-goers sampling its products would get their fill of Haagen-Dazs, Old El Paso Mexican food and Pillsbury baked goods. They could wash it down with Gordon’s gin, Jose Cuervo tequila or Moet & Chandon champagne.

The deal would give Guinness a firmer foothold in the United States with GrandMet’s Pillsbury and Burger King operations. GrandMet would gain from Guinness’ presence in Asia, Latin America and central Europe.

Guinness Chairman Tony Greener said 44% of his company’s sales come from developing markets.

GrandMet Chief Executive John McGrath said approximately 2,000 of the 20,000 jobs in the combined spirits business would be lost in the merger.

The combined company would have annual sales of $21 billion, making it about two-thirds the size of PepsiCo Inc., the owner of Pizza Hut, Taco Bell and Pepsi-Cola. It would rank as Britain’s eighth-largest company, based on market value.

“Scale is critical to compete globally in these markets today,” GrandMet Chairman George Bull said at a news conference. “We have got a tremendous range of complementary brands. We fit geographically, and our management shares a common philosophy.”

In New York trading, American depositary receipts of Guinness surged $7 to close at $49, while Grand Metropolitan ADRs rose $4.37 to close at $38.875.

The combination of the two companies had been foreshadowed. Last June, Guinness flatly denied speculation that it would launch a hostile bid for GrandMet. Bull said he brought up a possible merger with Greener over dinner last month. Since then, the two chairmen, who are close friends, have been working on the details.

The merger calls for GMG Brands to comprise four divisions: United Distillers and Vintners, the combined wine and spirits business; Pillsbury; Burger King; and Guinness Brewing Worldwide.

Structured as a stock swap, GrandMet shareholders would end up with 52.7% of GMG Brands, and Guinness shareholders would get the rest. Terms call for stockholders in each company to receive one share in the new company for each share they currently hold.

Bull and Greener will be co-chairmen of the board until July 1998, when Bull plans to retire. Greener will then become sole chairman. McGrath will keep the same job at GMG Brands.

The companies gave early notification of the merger to the European Union last week and expressed optimism that the deal would go ahead.