When Distillers Co. PLC, the world's largest producer of Scotch whisky, recently found itself threatened by an unfriendly takeover, the company's directors turned to what U.S. merger managers would call a "white knight."
But in proper British parlance, this white knight actually was an earl -- J. M. Connell, chairman of Guinness PLC, whose ales are aimed at a different class of imbibers than the Johnnie Walker, Haig and Dewars that drip from Distillers' stills.
Despite the distinguished peerages involved, the fight for Distillers has become more a brawl than a duel, yet another demonstration that Yankee-style corporate tactics are crossing the Atlantic.
What the British call "takeover fever" has descended suddenly on London, and it is turning the financial world upside down. In recent weeks, London has seen many new financial developments, most of which are widely regarded as imports from the United States. Takeover bids worth billions, small companies bidding for larger ones, white knights, debt collateralized by the assets of companies the borrower does not yet own, and other innovative arrangements are prompting many members of the financial community here to worry about the implications on the long-term health of the financial system, even as they pick up record fees and commissions.
The most spectacular battle has been for Distillers. Last December, Argyll Group Ltd., a food-retailing chain about one-third the size of Distillers, launched a bid worth $2.6 billion -- the largest in British financial history up to that time.
Distillers' management was hostile to the bid, in part because Argyll's aggressive chief executive, Jimmy Gulliver, promised to shake up what he characterized as Distillers' sluggish, bureaucratic and unenterprising management. But, according to London stock brokers, an equally important motivation was old-fashioned British snobbery, directed against the 56-year-old self-made millionaire Gulliver, who despite his Harvard MBA, still is widely regarded as a mere "Glasgow grocer."
"They thought he was an upstart," said analyst Alan Gray of Glasgow brokers Campbell Neal. "They regard themselves as running a very large, very established international company. They regard him as just a supermarketer who is very good at marketing baked beans."
Gulliver's efforts to break into the drinks industry, including acquisition in 1982 of the U.S. firm Barton Brands, which sells Montezuma Tequila and Corona Mexican beer, also have been a bit downmarket for Distillers' taste.
Last month, Distillers found its white knight in the form of Guinness, the beer and food group. In a totally unprecedented arrangement, Distillers agreed to pay all of the transaction costs involved in Guinness' $3.1 billion bid. This arrangement still is the subject of legal action instigated by Argyll.
To convince shareholders that they were a better bet as long-term managers of Distillers, Guinness took another unusual step by unleashing a blizzard of advertising, including full-page ads in newspapers. At its height, Guinness was estimated to be spending as much as $1.4 million a week on advertising. Under the deal, Distillers' shareholders' paid for all of it.
The advertisements have been criticized for using statistics in misleading ways and for putting corporate vitriol into banner headlines in a fashion that scarcely can improve the image of business. In addition, many brokers have wondered how the ads could possibly be cost-effective given the concentration of British shareholdings: upwards of 60 percent of Distillers' stock is in the hands of professional fund managers.
Whatever their effect on the takeover bid, Guinness found that sales of Guinness beer jumped after recent shareholder-directed ads used the toucan bird -- the much-loved corporate symbol that was retired a few years ago.
"It's rather like the arms race," said Malachy Quinn, creative director at London ad agency Aspect Hill Holiday. "One side spends so the other feels it must spend too. The companies feel they must maintain a feeling of confidence, of being aggressive. But it's hard to believe that it's all money well spent."
Two weeks ago, the Guinness bid was halted when the government Office of Fair Trading (OFT) decided that it had to be referred to the Monopolies and Mergers Commission (MMC) to examine whether the combination of Guinness's Scotch brands with Distillers' would restrict competition. During a Monopolies and Mergers investigation, which can take up to six months, the takeover bid is suspended.
Rather than surrender, Guinness last week promised to sell off at least five of its Scotch labels -- including one, Real Mackenzie, that it acquired only one year ago after another hard-fought takeover battle -- and it upped its offer to $3.3 billion. Guinness now is awaiting an OFT decision on whether this new bid will be referred to the MMC.
Many observers here are worried by the spectacle of a company trying to preempt the investigations and recommendations of the MMC. It has been compared with U.S. procedures where companies negotiate at length with the Federal Trade Commission prior to launching takeover bids -- but neither Britain's OFT nor the MMC has power or staff levels that the FTC has. The MMC is staffed by part-timers. In addition, the secrecy of the OFT process opens the way for pressure from politicians who may favor or oppose a particular bid.
"The general attitude of the government on OFT referrals is a bit confused," said Victor McColl, an analyst at London brokers Grieveson Grant. "Either they should insist that an OFT referral stops all bids for a company, or they should keep out of it and just let the market decide."
Financial experts also are worried by the growing influence of London's merchant banks. Morgan Grenfell, a merchant bank acting for Guinness, pledged to buy the Scotch labels Guinness has promised to sell if no other buyer can be found.