Allied Domecq is likely to buy Guinness's 49.6 per cent stake in Cantrell & Cochrane, and a stock market flotation of the Irish drinks company now seems unlikely.
At C&C's current level of profitability, it would seem that a buyout of the Guinness stake would cost Allied Domecq about £350 million.
C&C chief executive, Mr Tony O'Brien told The Irish Times: "My assessment would be that the most likely outcome to the ownership question is that Allied Domecq will buy out Guinness."
That, however, might change if Allied Domecq was successful in buying Guinness's Dewars scotch whisky brand, which is also likely to be sold as part of the conditions attached to the Grand Met merger.
Allied Domecq is likely to run up against severe competition from companies like Seagrams and Bacardi for the Dewars brand, which will probably cost the successful purchaser around £600 million. It is unlikely that Allied Domecq would be able to buy the Dewars brand and Guinness's stake in C&C.
"If they win Dewars, then they won't buy out the Guinness stake in C&C; if they fail to buy Dewars, then it's very likely that they will take full control of C&C," said one well-placed industry source.
It is understood that the European Commission will stipulate that, as part of the Grand Met merger, Guinness must reduce its stake in C&C to a maximum of 20 per cent. Guinness is unlikely to be happy with a minority stake of this size, and it seems certain that it will want to sell its entire stake.
Allied Domecq has first refusal on Guinness's remaining 49.6 per cent shareholding. Guinness has until November next year to sell or reduce its C&C stake, but industry sources believe that a disposal is likely sooner rather than later. "The longer Guinness leaves it, the more a forced seller Guinness will become, so they will move fast," said one source.
Industry sources believe it is highly unlikely that any trade buyer would be willing to buy a minority stake in C&C. A stock market flotation might be a very attractive prospect for Irish financiers and institutional investors but that now only seems likely if Allied Domecq fails to offer Guinness the price it thinks its C&C stake is worth.
Allied Domecq may have first option, but it will still need to offer Guinness a full price. A stock market flotation would need the support of majority shareholder, Allied Domecq, which might be required to make substantial changes to the C&C structure in the event of going public. Taking its own stake substantially below 50 per cent and accepting an independent chairman are all requirements that the stock exchange might impose on C&C as a plc.
C&C management might favour the plc route for the flexibility it would give the group in expanding its operations as the drinks industry worldwide rationalises and restructures. Irish investors would undoubtedly welcome the presence of a highly profitable and well-funded C&C on the stock market.
Since the takeover of Irish Distillers, the Irish stock market has not had any drinks company on its lists - a notable omission for investors who want exposure to Irish whiskey - one of the few sectors of the international drinks industry which is showing growth.
"It would be an awful shame if C&C stayed private. It isn't often that we would get the opportunity to invest in an Irish drinks company worth £700 million to £800 million. But it's all up to Allied Domecq - all we can do is wait and see what happens," said one Irish fund manager.
