Break-up pressure on Guinness eases

The pressure on Guinness to demerge its brewing and spirits divisions eased yesterday as analysts questioned the value of the proposed unbundling. Sources close to the company's largest shareholder, Bernard Arnault of LVMH, also moved to downplay suggestions he was pushing for a break-up, pouring cold water on rumours of a boardroom split.

Guinness shares edged higher, closing 2p up at 468p, as the market mulled the break-up rumours swirling round the drinks sector. GrandMet and Allied Domecq, the other large players in the spirits industry, are also under pressure to raise shareholder value in the face of stagnant worldwide demand and poor share price performance. At GrandMet's most recent annual meeting Lord Sheppard, its outgoing chairman, confirmed that the board had considered a demerger - although it had ultimately rejected the proposal.

Analysts were divided yesterday on the precise value of splitting Guinness's stout brewing activity from its Johnnie Walker whisky to Gordon's gin arm, but most agreed that the available gains rested to a large degree on the bid premium the market would certainly attach to the shares in the newly formed companies.

One analyst, who asked not to be named, put a break-up value of only 485p on the two businesses, barely above the current share price. That reflected a small premium for the brewing division, offset by a discount to the market rating for spirits to reflect its low growth prospects.

Alexandra Oldroyd at Morgan Stanley was more bullish, suggesting the underlying value of the parts could be as high as 530p even without a bid premium. The brewing side especially is thought unlikely to last long as an independent entity with its strong global position almost certain to attract a bidder.

Guinness yesterday stuck to its stated position that there was a high degree of synergy between the two sides with drinkers moving easily between both beer and spirits and plenty of marketing lessons to be learnt from each other.

After a disappointing set of full year figures last week, however, the company remains under pressure to maximise shareholder value. As the chart shows, Guinness shares have underperformed the market as a whole throughout the 1990s after massively outperforming other shares in the previous decade.

The fall in value of Bernard Arnault's stake has been compounded by a plunge in the value of sterling against the French franc. He is, however, understood to have no intention of reducing his stake in Guinness and he made it clear last week that he had no quarrel with Tony Greener, the Guinness chairman, or doubts about the way in which the company was being managed.

Buying the booze

1986: Guinness acquires Distillers, the Johnnie Walker to Gordon's spirits group, illegally supporting its own share price in the process. Ernest Saunders is ousted, after the corporate scandal. He is replaced by Anthony Tennant from GrandMet, who forges cross-shareholding links with LVMH, the French luxury products group.

The party

The Distillers takeover, despite the manner of its execution, is a huge commercial success. Disposals and cost-savings boost profits, as prices outstrip inflation. During the late 1980s, no-one has a bad word for Guinness - the shares soar.

Toasting success

1991: At the peak of its popularity, Guinness buys Cruzcampo, Spain's biggest brewer, for pounds 482m. Soon after, the Spanish economy dives and beer demand collapses. Anthony Greener (pictured above) takes over as chief executive, his appointment marking high water for the shares. 1992 profits fall for the first time in 13 years.

The hangover

The link with LVMH is partly unwound in January 1994 as Guinness swaps a number of shareholdings in Bernard Arnault companies for a 38 per cent direct stake in Moet Hennessy, the French group's drinks arm. Profits continue to stagnate, leading to increasing calls for shareholder value to be realised. A pounds 463m share-buyback is announced in March 1996. Demerger rumours persist.