Passion for Perrier Adds Fizz to European Merger Boom

THE French mineral water producer Perrier is at the center of a takeover battle that promises to be one of Europe's most important stock-market events of 1992.

Nestle, the Swiss food combine, and Gianni Agnelli, head of the Italian conglomerate that produces Fiat cars, are jousting for ownership of Source Perrier, whose distinctive green bottle has helped make it the world's most famous "designer water."

This is no straightforward shootout between industrial titans. Analysts see it as a part of a trend toward hostile takeover bids across European frontiers.

The Perrier "water war" is being fought against a bewildering background of deals and corporate rivalries. The triangle created by conflicting French, Swiss, and Italian interests has "opened up a can of xenophobic worms," says Anthony Thomas, an economist with Kleinwort Benson. "As we learn to live in the single European market due to be completed by the end of 1992 we are going to see many more cross-border acquisitions. The idea is to build up large multinational companies to exploit the economies of scale within the EC and to compete more effectively with the big American and Japanese companies."

In Brussels, headquarters of the European Community, there is acute interest in the battle for Perrier. "We are watching this one closely. It is to be compared with last year's attempt by the Italian tire company Pirelli to acquire the Continental Tyre group, and Carlo de Bendetti's unsuccessful bid for Belgium's Soci Gral de Belgique," says an official concerned with EC competition.

The first move in the battle for Perrier was made by Mr. Agnelli early in 1991, soon after Perrier withdrew its entire worldwide stocks from sale because traces of benzene had been found in bottles in the United States.

Agnelli bought a 13.5 percent stake in Exor, a French investment company that owns one-third of Perrier. Later he increased his Exor holding to 35 percent. Meanwhile Saint-Louis, a sugar and paper combine in which Agnelli has an interest, sold its own holding in Perrier to Exor. This brought the combined stake owned and controlled by Agnelli and his allies to just under 50 percent and appeared to leave him in a handy position to acquire Perrier.

Enter Helmut Macher, head of Nestle, late last year. He decided on a two-pronged strategy to head off Agnelli. Told that the French regulatory authorities were planning to scrutinize the legal validity of the Exor and Saint-Louis deals, he obtained French court orders freezing their Perrier holdings.

The Paris authorities are currently trying to decide whether Exor and Saint-Louis used inside information in an attempt to block the Nestle bid, news of which leaked a few days before it was made.

Mr. Macher's next step was to join forces with Banque Indo-Suez, a Parisian banking combine, and offer $2.4 billion for the water company.

A complicating feature of the battle is that mineral waters of brands other than Perrier are among the holdings of the combatants and are being used as shot and shell in the campaign. The huge French food group BSN already has one-fifth of the French bottled water market through ownership of the Evian and Badoit brands, and it seems likely to play a role in determining Perrier's future.

Agnelli owns 5.8 percent of BSN, but Nestle has close links with the same company. In an attempt to draw BSN to his side, Macher has promised that Nestle will sell BSN Perrier's interest in its own Volvic mineral water business if his bid succeeds. On Feb. 4 Macher appeared to score an important point in his shutout strategy against Agnelli when the Commission des Operations de Bourse in Paris said it had uncovered "serious weaknesses" in the actions of Exor and Perrier and was "doubtful" about the condu ct of Saint-Louis as well. Then on Feb. 16, the French government announced that it had no objection to the Nestle offer for Perrier.

Final rulings on the legality of the Exor and Saint-Louis actions are expected in the Paris commercial court by the end of February. If the court rules against Agnelli, he is likely to have to abandon his plan to absorb Perrier into his empire, leaving the way open for a successful bid by Nestle. Either way, Perrier would cease to be French owned.

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