Impatient shareholders are forcing Guinness into action

There should be an annual award for the shortest-lived takeover rumour. Surely a front-runner that will prove hard to beat was last weekend’s tip that Guinness was poised to launch a massive 13bn hostile play for Grand Metropolitan.

There ought to be some rules for this competition, if only to ensure that entries are barred from those endeavouring to ramp a supposed takeover target’s share price ahead of some Monday morning profit-taking. It has to be a bona fide, solid takeover tip that subsequently evaporates.

In this respect, the Guinness/GrandMet circumstance admirably qualifies. The Sunday Telegraph was evidently not on the receiving end of some flaky Friday night drop from the market. It was in possession of tangible evidence, namely a document entitled Project Reflection and authored by Guinness’ merchant bank Lazards, that the brewing and drinks retailing conglomerate had run its slide-rule across GrandMet in a rather more than hypothetical fashion.

Yet, well within 24 hours, the story had vanished in categorical denials, not only to the media but, far more importantly, to the Stock Exchange. The latter requires those who formally deny bid intentions to stand by their undertaking for at least two years.

Two questions consequently remain: Why did the Lazards document enter the public arena and what were Guinness’s intentions when it asked Lazards to write it, if it has no intention of launching a bid for the company?

The first question clearly addresses matters of motive. Someone, somewhere wanted to force Guinness’ hand. It is said there are plenty of Guinness shareholders who have grown restless at the flat earnings record of what has been and should be, they argue, a more exciting stock.

I bumped into Guinness’s former chair man and chief executive Ernest Saunders at the launch of Sunday Business a couple of months ago.

He told me then – and others have since – that his phone had barely cooled from the heat of his hand answering calls from institutional shareholders asking what should be done about Guinness.

As a result, I expected fireworks from him at the Guinness AGM, but was disappointed. Meanwhile, I learn that Bernard Arnault, chairman of Louis Vuitton Moë Hennessy and holder of 21 per cent of Guinness’s shares, held forth at the Savoy in March, in the wake of disappointing annual results from the brewer, and let it be known that he considered shareholder value was slow in materialising from Guinness chairman Tony Greener’s corporate strategy.

If these climatic indications are in any way representative of a deeper restiveness among Guinness shareholders, then clearly the leak with regard to GrandMet is likely to have emerged for rather more significant motives than the City simply trying to drum up some silly-season action.

No one needs to tell Greener and his executive colleagues that this means a powerful shareholder lobby is breathing down their necks. Such breath naturally leads to speculation about what Guinness is up to.

I hear that Guinness recently ran a press trip to Dublin for British City editors. One message percolating out of it is that Guinness is pursuing an incremental growth strategy. I take this to mean that Greener intends to sweat its organic structure, rather than embark upon any ambitious takeovers (the purchase of the Spanish Cruzcampo some five years ago still haunts the company).

Organic growth means, among other matters, the exploration of fresh geographical opportunities for the flagship synonym brand. It also means doing better than the company’s recent performance in non-stout brands. Harp is a long-standing under-performer, Kilkenny Irish ale has made progress, but still trails Caffrey’s, and Enigma lager has branding difficulties of case-study proportions.

The lesson being learned is clear – Guinness’s marketing expertise has to sharpen in non-stout brands. And the signs are that the marketing nettle is being grasped. Rationalisation of global spirits distribution is generating cost savings which can and are being reflected in increased marketing activity. It is also interesting to note that advertising is, in some instances, being replaced by price-cuts.

Incremental growth does not, of course, preclude the purchase of brands or portfolios that would assist international distribution networks for Guinness. Bacardi or LVMH’s Moë Hennessey are cited in this context, but not very hopefully. Similarly, there is Remy Cointreau, controlled by the Heriard Dubreuil family. I met the young brothers who run Remy Cointreau in Paris and they don’t sound like sellers to me.

So, perhaps, it’s a demerger of Guinness’s brewing side that will deliver shareholder value – that, at least, would be corporately fashionable. Or we’re back to the mega-bid scenario – if not GrandMet, then possibly that long-standing break-up opportunity at Allied Domecq.

What shareholder unrest at Guinness seems to imply is that more of the same is not a possibility. By which I mean the shooting down of the GrandMet play at the start of this week should not be perceived as too much of a disappointment to the market. Something big will shortly be happening at Guinness.