View from City Road: Guinness deals will allow the cream to rise
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Your support makes all the difference.It was Black Velvets all round yesterday as the stock market saluted Guinness's move to disentangle itself from the handbags and perfume of LVMH and to link its stout directly with the French company's champagne and cognac interests.
Strategically and financially, the drinks company has executed a double coup. It is locking into an incipient recovery in champagne and cognac sales and banking pounds 416m by swapping a convoluted 24 per cent indirect stake in LVMH for a direct 34 per cent shareholding in Moet Hennessy.
The transaction neatly removes Guinness's unpopular exposure to the recession-ravaged luxury goods market. Another benefit to come from severing connections with LVMH is that Guinness will not have to participate in the French group's media aspirations or consequential fund-raising.
A 34 per cent stake in Moet, under French law, also represents a threshold that gives Guinness first call on the outstanding shares in Moet if LVMH is taken over.
Now that Guinness and Moet are joined at the hip, in the words of Tony Greener, chairman and chief executive, the two drinks groups can push ahead with re- inforcing their joint distribution.
Control over distribution is the philosopher's stone of international marketing. It provides control over pricing, stocking and customer targeting for branded drinks and has been the key to turning United Distillers, owned by Guinness, as well as Grand Metropolitan's IDV subsidiary and the Hiram Walker arm of Allied-Lyons into three of the world's top four drinks companies.
Moet is the world's biggest producer of champagne and cognac and will draw as much benefit from the new alliance as its new main shareholder, Guinness. While champagne is still predominantly a European taste, there are early signs that it appeals in the Pacific, South America and China.
The main benefits will not flow through for a couple of years. But Mr Greener has cheered up somewhat despondent Guinness shareholders no end.
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