The combined group will make about a quarter of profits from those fast- growth regions.In the mature markets of North America, where GrandMet is strong, and Europe, combining the two operations will increase GMG’s buying power in a still highly fragmented market and help it force through price rises after years of flat demand and low inflation keeping a lid on the cost of spirits.Less clear cut are the benefits of holding on to the non-spirits operations, even if John McGrath, chief executive-designate, is understood to believe that by the end of the decade Burger King will be the fastest growing part of the group and provider, thanks to its franchise system, of a sizeable fillip to the group’s return on capital.The real attractions of the proposed deal are financial. It takes in the original Irish stout brewing operation and Burger King.The commercial appeal of the proposed deal hinges on the ability of the new spirits business to push a greatly enlarged portfolio of brands through an existing distribution network around the world. GrandMet has next to no exposure to the developing markets of the Far East and Latin America, so adding its products to Guinness’s existing offering will increase sales in those regions rapidly at little extra cost.Guinness currently makes around 44 per cent of its spirits profits in developing markets, while GrandMet’s exposure is less than 10 per cent. More than half its profits will come from its spirits arm, a combination of Guinness’s United Distillers (UD) and GrandMet’s International Distillers and Vintners (IDV).Its enlarged spirits portfolio will combine Johnnie Walker whisky and Gordon’s gin from UD with IDV’s J&B scotch, Gilbey’s gin and Bailey’s liqueur.Sales of its spirits brands, which also include Jose Cuervo tequila, Hennessy cognac and Malibu, will leave its main competitors, Allied Domecq and Seagrams, standing.The combined UDV will sell more than 100 million cases of spirit, compared with Allied’s 47 million and the Seagram’s 41 million.GMG’s other interests include GrandMet’s Pillsbury food manufacturing business, Haagen Dazs ice-cream, and Guinness’s 34 per cent investment in the Moet-Hennessy champagne to cognac group. As a result of their company’s slightly greater size, GrandMet shareholders will end up owning 53 per cent of the enlarged group.The deal represents a combination of some of the best known food and drinks brands in the world.

Whatever the competition authorities and the consumer might make of the proposed merger of Guinness and GrandMet, it is hard to fault the deal in financial or commercial terms. In spirits, which is what this marriage is really about, the two companies’ geographical and product spreads mean this was a combination just waiting to happen. It marks a first step in the consolidation the industry has needed for years to solve the deep-seated problems of price increases below inflation in its mature Western markets, de-stocking and heavy price discounting after the late 1980s party collapsed into the hangover of the early 1990s recession.
GMG Brands, as the new monolith is to be called, will be Britain’s eighth biggest company and the world’s seventh largest food and drink group, with a market value in excess of pounds 20bn. Valued at just less than McDonald’s, it will dwarf other global players like Heinz and Kellogg.

It will have 18 of the world’s top 100 spirits brands, combined sales of almost pounds 13bn, profit before interest and tax of pounds 2.2bn and free cash flow of over pounds 900m.Such is the strength of the new group’s balance sheet that one of its first moves will be to hand pounds 2.4bn of surplus capital straight back to shareholders via a 60p payout, which for tax reasons will be in the form of a new class of share, convertible into cash.Even after that act of largesse, its earnings will cover interest payments on its debts more than five times.Although a genuine merger between the two companies, the deal is to be structured as an all-share takeover of GrandMet by Guinness, which will change its name to GMG Brands before swapping one of its own shares for each GrandMet share. If it is London, then it should get some clue as to the kind of treatment it can expect from Mrs Beckett’s rulings on the three big merger deals piled up in her in-tray awaiting clearance: Bass- Carlsberg Tetley; P&O-Stena; and British Airways-American Airlines.. Although this commitment was ommitted from Labour’s business manifesto in favour of a promise that Lord Borrie would “review” the public interest test, there seems little doubt that the climate for hostile bids is going to become more difficult.It is likely to be several weeks before GMG discovers where its fate is to be decided. The onus now is on the competition authorities to prove that a merger would be against the public interest. Given the wider employment considerations and the even bigger concentration in manufacturing that would stem from the merger, Margaret Beckett, President of the Board of Trade, could make a strong case for wresting authority back to London.How would Labour handle such a merger? The ink is not yet dry on its competition policy.

Nigel Griffiths, the minister responsible for competition, has only just been handed his portfolio and Lord Borrie, the former Director- general of Fair Trading, who is leading a panel of three wise men advising Labour on how its competition policy should be formulated, has yet to report.However, Mrs Beckett had a reputation, in opposition at least, for being something of a hawk on mergers policy. Mr Griffiths, her junior minister, also had a penchant for backing referrals and then aksing questions later.At Mrs Beckett’s behest, Labour had intended to reverse the burden of proof in hostile takeovers so that the bidder would be required to demonstrate that a merger was in the public interest. This clause was successfully used to permit the Office of Fair Trading and the Monopolies and Mergers Commission to vet the rival bids by Gehe and Unichem for Lloyds’ Chemists.Yesterday Guinness and GrandMet both said they were confident that there was no case for the merger being examined by the UK authorities as opposed to those in Brussels There were similar indications coming from the OFT. Less that 10 per cent of GMG’s combined sales are within the UK. Even so, its dominance of some distinct markets would be significant.

The combined group would account for 51 per cent of all the gin sold in the UK, 41 per cent of all the vodka and 22 per cent of all the Scotch whisky consumed. Labour’s gut instinct may well be to haul the proposed GrandMet- Guinness merger back from Brussels and insist on the deal being vetted here, making it the first big test case of the Government’s competition policy

How easy that would prove in practice is less clear. In terms of its size and the proportion of turnover generated in the UK as opposed to Europe and elsewhere, the deal falls squarely under the remit of the European Commission’s mergers task force. Mergers are referred automatically to Brussels if the combined turnover of the parties exceeds 5bn ecu (pounds 3.5bn), each of them has EU sales of at least 250m ecu and not more than two-thirds of sales are within one member state.
There is a clause in the legislation, however, which allows a member state to ask Brussels for jurisdiction to be handed back to national competition authorities if it can demonstrate that a merger would pose competition problems in a distinct market.