Kate Rankine, City Correspondent, and Nils Pratley on a meeting of minds
IT WAS over dinner in a private dining room at the exclusive Dukes Hotel in St James's Place, London, that George Bull, Grand Metropolitan chairman, popped the question to unsuspecting Guinness chairman Tony Greener a little over a month ago.
The two men's dinner date on Thursday, April 10 had been in their diaries for several months, one of their twice-yearly meetings to gossip about the industry.
But Mr Bull, 60, had more on his mind than discussing the anti-alcohol lobby with his rival. Leaning towards Mr Greener, 56, Mr Bull was extremely frank with his friend of 17 years. "I told him I thought it would be a great idea if our two companies merged," he said.
Mr Bull added: "Tony said afterwards that you could've knocked him over with a feather." But he recovered quickly, saying that he too had been thinking about a merger .
This cannot have come as a great surprise to Mr Bull (or anyone else) since, last July, The Sunday Telegraph obtained detailed leaked documents drawn up by Guinness's financial advisers, Lazard Brothers, which disclosed that the company was considering a £13.2 billion bid for Grand Metropolitan .
The leak was hugely embarrassing for both Guinness and Lazard. Guinness was forced to issue a statement to the Stock Exchange which said: "Guinness has no intention of making a hostile bid for Grand Metropolitan or of selling or demerging its brewing interests." The difference this year is that the deal is friendly, as Messrs Bull and Greener were almost falling over each other to stress. At yesterday's presentations to analysts, fund managers and the press, the pair shared jokes and smiled sweetly at each other.
"It really has been extraordinary," gushed Mr Bull, who added that the two never had a cross word during two weeks' intensive negotiations.
Over the remainder of last month's dinner, paid for by Mr Bull, the two men talked about how they would combine their businesses. A friendly merger would avoid the big bid premium and huge borrowings of a hostile takeover, but would allow for massive cost savings.
What neither said yesterday was that there is a more powerful reason to merge - both companies have under-performed the FT-SE 100 index massively in the past five years, as the chart shows.
For both, it has been humbling. Grand Met, under Lord Sheppard, George Bull's predecessor, gained a reputation as a deal-a-minute operator that regularly clocked up exceptional charges running into hundreds of millions. The City never trusted the company and Mr Bull's reign - until yesterday - was meant to be about organic growth.
At Guinness, Mr Greener has had an almost impossible job generating value. In the late-1980s, soon after the controversial takeover of Distillers, the company regularly produced double-digit earnings growth as it ripped out costs and bought in the distributors who had previously swallowed half the profits.
By the time Mr Greener became chairman in 1993, the real state of the worldwide spirits market was plain to see. In America and most other developed markets, consumption was falling slowly and inflation-beating price rises almost impossible to achieve. The pain is obvious in Guinness's profits: last year's trading profits of £961m were £62m short of the figure in 1992.
As their dinner finished, Mr Bull and Mr Greener quickly began putting together their respective teams of advisers plus the code names of "Garden" for Grand Met and "Bristol" for Guinness.
Despite last year's leak, Lazard's Marcus Agius is working for Guinness, along with law firms Norton Rose, Theodore Goddard and SJ Berwin. Grand Met has called in Stephen Latner of SBC Warburg and lawyers Slaughter & May. Such financial advisers don't come cheap. Philip Yea, Guinness finance director who will become GMB Brands' finance director, estimates their fees will be "south of £100m".
