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Huge British Merger Might Face Antitrust Review

January 21, 1986

LONDON (AP) _ The record $3.2 billion merger agreement between two leading British makers of alcoholic beverages, Arthur Guinness & Sons PLC and Distillers Co., likely could face review by British antitrust officials, industry analysts said Tuesday.

Such an investigation could delay the merger for as long as six months, and the nation’s antitrust agency, the Monopolies and Mergers Commission, could urge that the deal be scuttled altogether if it finds the merger would endanger competition.

But Guinness’ chief executive, Ernest Saunders, said he did not believe such a review would hamper his company’s proposed acquisition of Distillers, in what represents the largest merger in British history.

Guinness said Monday it agreed to acquire Distillers for 2.27 billion British pounds, or $3.21 billion at current exchange rates.

Distillers is one of the world’s leading producers of Scotch whiskys, including Dewar’s and Johnnie Walker, and it also makes Gordon’s gin.

Guinness is a leading British brewer known for its dark Guinness stout, and for its book of world records. Guinness also entered the Scotch whisky business last year when it acquired a Distillers rival, Arthur Bell & Sons PLC, for about $507 million.

Distillers sought the marriage with Guinness to thwart a hostile $2.68 billion takeover bid for Distillers by Argyll Group PLC of Britain.

Since Argyll is primarily a food retailer, its proposed purchase of Distillers has not triggered antitrust objections from the government of Prime Minister Margaret Thatcher.

But because the Guinness-Distillers merger would create a company accounting for nearly 40 percent of the British market for Scotch whisky, there is a strong chance the transaction would face an antitrust review, said Philip Shaw, an analyst with the investment firm L. Messel.

Argyll also was quick to note the potential for such a review.

″This proposal, leading to such a dominant share in the production of Scotch whisky and the marketing of whisky in the U.K., will inevitably be referred to the monopolies commission,″ Argyll said. ″In contrast, Argyll’s offer has received unconditional clearance from the (U.K. Office of Fair Trading) and thus its offer will be allowed to proceed.″

Argyll also insisted that by accepting Guinness’ proposal, Distillers’ board had ″conceded to Argyll’s arguments on the need for new management.″

At a news conference Monday, Saunders downplayed the impact of an antitrust review. He said that because of what he called the ″strategic importance″ of the Scotch whisky business and its contribution to British exports, ″I don’t think anyone is going to worry about a few points of market share.″

However, Saunders indicated that if the proposed merger was reviewed by the commission, Guinness would be willing to proceed nonetheless and cooperate with the panel’s investigation.

The stock market appeared to take a cautious view toward the proposed merger.

The price of Distillers’ common stock slipped 3 pence a share to 5.60 pounds ($7.89) on the London Stock Exchange after losing 3 pence Monday. Guinness’ stock dropped 5 pence a share to 2.88 pounds ($4.06) after losing 10 pence Monday. Argyll’s stock also lost ground, dropping 5 pence a share to 3.50 pounds ($4.93) after skidding 16 pence Monday.

Still, Messel’s Shaw termed the Guinness proposal ″a very attractive offer for Distillers’ shareholders.″

Guinness said it would exchange eight newly issued shares of its common stock plus 7 pounds ($9.94) cash for every five Distillers shares, except for the 100,000 shares that Guinness already owns.

The Guinness-Distillers agreement is the latest in a wave of major merger proposals that have swept British industry.

The conglomerate Hanson Trust PLC recently offered the equivalent of $2.8 billion to buy Imperial Group PLC, one of Britain’s largest tobacco companies. Imperial rejected the offer.

Plessey Co. PLC, the British aerospace and electronics concern, also has rejected a $1.72 billion buyout offer from General Electric Co. of Britain, which is not related to the U.S. company of the same name.

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