Guinness may hive off spirit brands

Guinness and Grand Metropolitan look set to hive off some of their best- known spirits brands in the latest attempt to clear their proposed pounds 23bn merger with the European Commission.

The two drinks giants are understood to be preparing to offer concessions to the EC's merger task force in a bid to clear the final regulatory hurdles. Karel van Miert, the EC competition commissioner, is thought to have serious concerns about the power the combined group would have over the European spirits market and its ability to dictate terms to drinks retailers.

The merged company, to be called GMG Brands, would have more than 40 per cent of the Scotch whisky market in several European countries. GrandMet and Guinness are already the world's first and second largest spirits suppliers, with brands such as Bell's whisky, Gordon's gin and Smirnoff vodka. A final decision by the EC is due on 27 October.

Earlier this month the companies put forward a vigorous defence of their plans at two days of private hearings in Brussels after receiving a formal letter of objections from the EC. In this first phase of the negotiations the drinks groups have stopped short of offering any significant alterations to the deal.

But sources close to the discussions said Guinness and GrandMet were preparing to shift their approach in the next few weeks and offer concessions which they hope will satisfy the EC. "From now on it's for GMG to come up with concessions, rather than the merger task force," said the source.

Another industry source said: "GrandMet and Guinness know they may have to make concessions. They are drawing up plans to dispose of some of their brands if that is what it takes to get the merger through."

Some analysts believe that GMG Brands will have to give up at least one of its whisky brands in Europe to receive the green light from the EC competition authorities. Brands such as Dewar's, White Horse and VAT 69 could be sold, which would still leave the company with leading names such as Johnnie Walker and Bell's.

The EC is also concerned about the dominance the group will have over the European white spirits market and it may be required to sell off leading gin brands such as Bombay.

Drinks rivals Allied Domecq, Irish Distillers and Seagram are believed to have submitted their formal objections to the EC, with fears that the merger will give Guinness and GrandMet a virtual monopoly in certain markets such as Spain, Germany and the Benelux companies.

GMG could also have to give up brands in North America to clear the deal with the US Federal Trade Commission. Seagram, the Canadian drinks giant, claimed the deal would give GMG Brands a 75 per cent share of the US scotch whisky market. Analysts believe GMG Brands is preparing to dispose of some of its smaller brands such as Scoresby, Crawford and Ushers, which together account for 15 per cent of its US scotch sales.

Even if the EC and FTC are prepared to accept concessions, the company will have to overcome the challenge of Bernard Arnault, head of French luxury goods group LVMH, who is trying to scupper the merger.

A Guinness spokesman said talks with the EC were confidential.