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Owners of Burger King, Guinness brewery to merge

May 12, 1997

LONDON (AP) _ 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 PLC and Guinness PLC, 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 percent 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.

GMG Brands, 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.″

He says that approach is ``market-oriented, led by consumers.″

The combination of the two companies had some foreshadowing. 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 percent 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.

Following the deal’s completion, GMG Brands shareholders will receive a total of $3.9 billion in cash, worth at least 98 cents a share.

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 the deal will go ahead. Guinness finance director Phil Yea, who will become finance director of the new company, said it might not be completed ``much before the end of the year.″

But Robert Matschullat, vice chairman and chief financial officer of Seagram, a major competitor, said the deal raises antitrust issues.

He said the new company would control ``well over half of the global scotch business which is the largest and most profitable category in the spirits business worldwide.″

The two companies said the deal should eventually generate operating cost savings of $285 million annually.

``We think it will be quite a lot bigger than that,″ said Andrew Holland, an analyst with Dresdner Kleinwort Benson Securities. He was ``a bit skeptical,″ though, that the business can grow faster as a result of being merged.

Despite the early rumors, the deal was a well-kept secret and stunned the City of London, the capital’s financial center. Guinness shares rose 86 pence, or 17 percent, to 602.5 pence on the news. GrandMet shares finished at 591.5 pence, up 76.5 pence, or 15 percent.

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