Guinness brew-haha in the City lapping at Thatcher government
Its slogan was ``Guinness is good for you.'' But in Britain's financial community these days, the mere name of the company, famous for its dark brown alcohol called stout, only spells trouble. In the wake of stunning allegations of illegal share dealings, the international brewing giant is at the center of the worst financial scandal here in years. As heads continue to roll in the City, London's Wall Street, the scandal has created serious political problems for Prime Minister Margaret Thatcher's government, well known for its support for big business.Skip to next paragraph
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``It's the biggest scandal that has ever happened in the City,'' says Philip Healey, publisher of Acquisitions Monthly. ``It's the first time that the Bank of England has asked so many top people to leave.''
The whole affair - which centers on attempts by Guinness to prop up its share price during a 2.5 billion takeover battle for Distillers Company, a whiskey concern - is being investigated by the Department of Trade and Industry.
The DTI inquiry comes after the uncovering of illegal payments by Guinness to Ivan Boesky, the disgraced arbitrageur involved in the United States insider-trading scandal. Mr. Boesky told the US Securities and Exchange Commission that Guinness placed about $100 million in his investment partnership. The SEC reported this to the DTI under an information sharing agreement signed last fall.
Boesky also reportedly told the SEC about a share-support operation by Guinness to buy 25 million (about $38 million) of its own shares during the takeover battle for distillers.
The attempt to boost Guinness shares helped make the company's offer price more attractive to Distillers shareholders, enabling Guinness to defeat a rival bid by Argyll Foods PLC, a supermarket chain.
Guinness has launched its own investigation into these payments and has acknowledged that 11 parties - including British, Austrian, Indian, Swiss, American, and offshore companies - were involved in what is believed to have been an unlawful massive exercise in stock manipulation. The most recent disclosures focus on these payments.
Among the first to admit involvement in share supporting was Heron International PLC, a financial services company which has been involved in several other takeover fights. Heron recently repaid 5.8 million to Guinness.
Heron said it was told any loss on its purchases would be covered by Guinness. If Guinness won the bid, Heron would receive a 5 million ``success fee'' and 800,000 ($1.2 million) for market losses and expenses.
Before Heron's admission, the Zurich-based Bank Leu, one of Switzerland's oldest banks, said it had bought Guinness shares and was given similar assurances of indemnity. Guinness made a 50 million deposit with Bank Leu, which bought 41 million of Guinness shares.
Another payment made by Guinness remains the source of sharply differing claims. Henry Ansbacher & Co., an investment bank, was given 7.6 million, which it says was used to reimburse clients who had purchased Guinness shares during the takeover bid.
After initially insisting the money was given to Ansbacher solely as a deposit, Guinness now says uncertainty surrounds ownership of these shares.
Under British law, offering financial inducements to a third party to manipulate a company's share price is illegal. It is also illegal for a company to use its money to buy its shares without shareholder approval.