AGREEMENT CONTAINING CONSENT ORDER

UNITED STATES OF AMERICA

BEFORE

FEDERAL TRADE COMMISSION

In the matter of

GUINNESS PLC a corporation, and GRAND METROPOLITAN PLC, a corporation.

File No. 971 0081

AGREEMENT CONTAINING CONSENT ORDER

The Federal Trade Commission ("Commission"), having initiated an investigation of the proposed merger between Guinness plc ("Guinness") and Grand Metropolitan plc ("Grand Met"), and it now appearing that Guinness and Grand Met, hereinafter sometimes referred to as "proposed respondents," are willing to enter into an agreement containing an order to divest certain assets and providing for other relief:

IT IS HEREBY AGREED by and between proposed respondents, by their duly authorized officers and attorneys, and counsel for the Commission that:

1. Proposed respondent Guinness is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom with its office and principal place of business located at 39 Portman Square, London, England W1H 0EE.

2. Proposed respondent Grand Met is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom with its office and principal place of business located at 8 Henrietta Place, London, England W1M 9AG.

3. Proposed respondents admit all the jurisdictional facts set forth in the draft of complaint here attached for the purposes only of this agreement and any proceeding arising out of, or to enforce, this agreement (including the order herein and the Asset Maintenance Agreement, attached as Appendix I).

4. Proposed respondents waive:

a. any further procedural steps;

b. the requirement that the Commission's decision contain a statement of findings of fact and conclusions of law;

c. all rights to seek judicial review or otherwise to challenge or contest the validity of the order entered pursuant to this agreement; and

d. any claim under the Equal Access to Justice Act.

5. Proposed respondents shall submit within forty-five (45) days of the date this agreement is signed by proposed respondents, an initial report, pursuant to Section 2.33 of the Commission’s Rules, signed by the proposed respondents setting forth in detail the manner in which the proposed respondents will comply with Section II of the order when and if entered, including, among other things, a description of all substantive contacts or negotiations for the divestiture and the identity of all parties contacted. Proposed respondents shall include in their initial report copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning divestiture. Such report will not become part of the public record unless and until the accompanying agreement and order are accepted by the Commission for public comment.

6. This agreement shall not become part of the public record of the proceeding unless and until it is accepted by the Commission. If this agreement is accepted by the Commission, it, together with the draft of complaint contemplated thereby, will be placed on the public record for a period of sixty (60) days and information in respect thereto publicly released. The Commission thereafter may either withdraw its acceptance of this agreement and so notify the proposed respondents, in which event it will take such action as it may consider appropriate, or issue and serve its complaint (in such form as the circumstances may require) and decision containing the order herein, in disposition of the proceeding.

7. This agreement is for settlement purposes only and does not constitute an admission by proposed respondents that the law has been violated as alleged in the draft of complaint here attached, or that the facts as alleged in the draft complaint are true.

8. This agreement contemplates that, if it is accepted by the Commission, and if such acceptance is not subsequently withdrawn by the Commission pursuant to the provisions of Section 2.34 of the Commission's Rules, the Commission may, without further notice to the proposed respondents, (1) issue its complaint corresponding in form and substance with the draft of complaint here attached and its decision containing the following order to divest in disposition of the proceeding and (2) make information public with respect thereto. When so entered, the order shall have the same force and effect and may be altered, modified or set aside in the same manner and within the same time provided by statute for other orders. The order shall become final upon service. Delivery by the U.S. Postal Service of the complaint and decision containing the agreed-to order to each of proposed respondents’ counsel as stated in this agreement shall constitute service. Proposed respondents waive any right they may have to any other manner of service. The complaint may be used in construing the terms of the order, and no agreement, understanding, representation, or interpretation not contained in the order or the agreement may be used to vary or contradict the terms of the order.

9. Proposed respondents have read the proposed complaint and order contemplated hereby. Proposed respondents understand that once the order has been issued, they will be required to file one or more compliance reports showing that they have fully complied with the order. Proposed respondents agree to comply with Paragraph II.E of the proposed order from the date they sign this agreement. Proposed respondents further understand that they may be liable for civil penalties in the amount provided by law for each violation of the order after it becomes final.

ORDER

IT IS ORDERED that, as used in this Order, the following definitions shall apply:

A. "Guinness" means Guinness plc, its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups and affiliates controlled by Guinness PLC, and the respective directors, officers, employees, agents, and representatives, successors, and assigns of each.

B. "Grand Met" means Grand Metropolitan plc, its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups and affiliates controlled by Grand Metropolitan plc, and the respective directors, officers, employees, agents, and representatives, successors, and assigns of each.

C. "Respondents" means Guinness and Grand Met, individually and collectively, and their successor, Diageo.

D. "Commission" means the Federal Trade Commission.

E. "Dewar’s" means "Dewar’s," "Dewar’s White Label," and any other brand of Scotch whisky that uses the name "Dewar’s" in connection with Scotch whisky.

F. "Bombay" means "Bombay," "Sapphire," "Bombay Original," "Bombay Sapphire" and any other brand that uses the name "Bombay" in connection with gin.

G. "Assets To Be Divested" means:

1. all assets, properties, business and goodwill, tangible and intangible, owned or controlled by Guinness, anywhere in the world, used in the manufacture, distribution, marketing, and sale of Scotch whisky under any trade name or trademark that incorporates the term Dewar’s, including, without limitation (except that distilleries, distilling capacity, storage capacity, inventory, and cooperage services, are limited as specified in sub-paragraphs (i) - (k) below), the following:

a.the trade name or trademark "Dewar’s" and all trademarks, trade dress, trade names, and logos associated with the sale of any "Dewar’s" Scotch whisky;

b.the Dewar’s profit and loss statements, Dewar’s contribution statements and Dewar’s advertising, promotional, and marketing spend records;

c.all Dewar’s customer lists, vendor lists, catalogs, sales promotion literature, advertising materials, research materials, technical information, management information systems, software, inventions, trade secrets, intellectual property, blend specifications, formulas;

d.all names of manufacturers and suppliers under contract with respondents who produce for, or supply to, respondents in connection with the manufacture or sale of Dewar’s;

e.copies of all product testing required by any regulatory authority relating to Dewar’s;

f.all price lists for Dewar’s;

g.molds currently in use for bottling Dewar’s in its various sizes sufficient to produce 3 million 9-liter cases of Dewar’s per year;

h.all inventories of finished case goods and packaging relating to Dewar’s;

i.sufficient distilling capacity to produce 3 million 9-liter cases of Dewar’s per year, including the distillery located in Aberfeldy, Scotland;

j.sufficient inventory of aged, distilled malt and grain whisky and storage capacity to produce 3 million 9-liter cases of Dewar’s White Label per year for seven (7) years, provided, however, that the acquirer may utilize such stocks solely for the purpose of producing Dewar’s or for trading for other stocks to be used in producing Dewar’s.

k.sufficient cooperage services to produce 3 million 9-liter cases of Dewar’s per year;

l.to the extent transferable or assignable, all rights, titles, and interests in and to the contracts relating to Dewar’s entered into in the ordinary course of business with customers (together with associated bid and performance bonds), other Scotch distillers, suppliers, sales representatives, distributors, agents, personal property lessors, personal property lessees, licensors, licensees, consignors, and consignees;

m.all rights under warranties and guarantees, express or implied, relating to Dewar’s;

n.all books, records, and files, relating to Dewar’s; and

2. all assets, properties, business and goodwill, tangible and intangible, owned or controlled by Grand Met, anywhere in the world, used in the manufacture, distribution, marketing, and sale of gin under any trade name or trademark that incorporates the term "Bombay," including, without limitation, the following:

a.the trade name or trademark "Bombay" and all trademarks, trade dress, trade names, and logos associated with the sale of any "Bombay" gin;

b.the Bombay profit and loss statements, Bombay contribution statements and Bombay advertising, promotional and marketing spend records;

c.all Bombay customer lists, vendor lists, catalogs, sales promotion literature, advertising materials, research materials, technical information, management information systems, software, inventions, trade secrets, intellectual property, blend specifications, formulas;

d.all names of manufacturers and suppliers under contract with respondents who produce for, or supply to, respondents in connection with the manufacture or sale of Bombay;

e.copies of all product testing required by any regulatory authority relating to Bombay;

f.all price lists for Bombay;

g.molds currently in use for bottling Bombay in its various sizes sufficient to produce 800,000 9-liter cases of Bombay per year;

h.all inventories of finished case goods and packaging relating to Bombay,

i.to the extent transferable or assignable, all rights, titles, and interests in and to the contracts relating to Bombay entered into in the ordinary course of business, including but not limited to the contract between Grand Met and Greenalls Group plc as relating to Bombay, with customers (together with associated bid and performance bonds), other distillers, suppliers, sales representatives, distributors, agents, personal property lessors, personal property lessees, licensors, licensees, consignors and consignees;

j.all rights under warranties and guarantees, express or implied, relating to Bombay; and

k.all books, records, and files, relating to Bombay.

H. “Merger" means the proposed merger of Grand Met and Guinness pursuant to the merger agreement dated May 11, 1997, leading to the creation of Diageo.

II.

IT IS FURTHER ORDERED that:

A. Respondents shall divest, absolutely and in good faith, within six (6) months from the date the Agreement Containing Consent Order is signed by respondents, all of the Assets To Be Divested; with the assets described in Paragraphs I. G.1 going to a single acquirer and the assets described in Paragraphs I. G.2 also going to a single acquirer (who may be the same acquirer as the acquirer of the assets described in Paragraph I. G.1),

provided, however, that if the Commission, in its sole discretion, determines that the acquirer of any of the Assets To Be Divested does not require any or all of the distillery capacity, cooperage services, or inventory of or storage capacity for aged, distilled malt and grain whiskies referred to in Paragraphs I. G .1 (i) - (k) in order to fulfill the purposes of this Order (including as a result of other arrangements made by the acquirer such as supply agreements with respondents or others as approved by the Commission), then respondents shall not be required to divest such assets,
provided further, that to the extent that the Assets To Be Divested include ownership interests in distilled spirits distributors, respondents shall not be required by virtue of anything contained in this Order to divest such ownership interests,
provided further, that to the extent that any document or other material included within the Assets To Be Divested contains information concerning a brand other than Dewar’s or Bombay, such other information need not be provided, and
provided further, that if any document or other material included within the Assets To Be Divested is required to be retained by respondents by requirements of law, or for tax purposes or for defending products liability lawsuits, respondents may retain a copy of such material for use only for such purposes.

B. Respondents shall make best efforts to ensure the continued and uninterrupted supply of Bombay to the acquirer by its existing supplier, Greenalls Group plc ("Greenalls"), under the terms of the existing contract between Greenalls and Grand Met. In the event Greenalls does not agree to supply the acquirer under terms acceptable to the acquirer, to ensure the acquirer an uninterrupted supply of Bombay at supply levels consistent with the terms of the contract with Greenalls, at the request of the acquirer, respondents shall produce and bottle Bombay in England for the acquirer using the same production methods, type of equipment, and recipe as those used by Greenalls for the production of Bombay, through September 30, 2001, or such shorter or longer time period as respondents and the acquirer may mutually agree. Respondents shall charge the acquirer, for a period of twelve (12) months from the date of the divestiture, no more than the prices for Bombay charged by Greenall as of the date the Agreement Containing Consent Order is signed. Thereafter, through September 30, 2001, respondents may charge the acquirer prices in accordance with the terms in the existing contract between Grand Met and Greenalls.

C. The purposes of the Order are to remedy the lessening of competition resulting from the merger as alleged in the Commission’s complaint, and to ensure the continued use of the Assets To Be Divested in the same businesses in which the Assets To Be Divested are engaged at the time of the merger.

D. Respondents shall divest the Assets To Be Divested only to an acquirer or acquirers that receive the prior approval of the Commission and only in a manner that receives the prior approval of the Commission.

E. Pending divestiture of the Assets To Be Divested, respondents shall take such actions as are necessary to maintain the viability and marketability of the Assets To Be Divested and the ability to compete at the same levels of sales, profitability, and market share as prior to the Merger, subject to prevailing market conditions, and to prevent the destruction, removal, wasting, deterioration, or impairment of any of the Assets To Be Divested, except for ordinary wear and tear.

F. Respondents shall comply with all terms of the Asset Maintenance Agreement, attached to this Order and made a part hereof as Appendix I. The Asset Maintenance Agreement shall continue in effect until such time as respondents have divested all the Assets To Be Divested as required by this Order.

III.

IT IS FURTHER ORDERED that:

A. If respondents have not divested, absolutely and in good faith and with the Commission's prior approval, the Assets to be Divested within six (6) months of the date respondents sign the Agreement Containing Consent Order, the Commission may appoint a trustee to divest the Assets To Be Divested. In the event that the Commission or the Attorney General brings an action pursuant to Section 5(l) of the Federal Trade Commission Act, 15 U.S.C. § 45(l), or any other statute enforced by the Commission, respondents shall consent to the appointment of a trustee in such action. Neither the appointment of a trustee nor a decision not to appoint a trustee under this Paragraph shall preclude the Commission or the Attorney General from seeking civil penalties or any other relief available to it, including a court-appointed trustee, pursuant to Section 5(l) of the Federal Trade Commission Act, or any other statute enforced by the Commission, for any failure by the respondents to comply with this Order.

B. If a trustee is appointed by the Commission or a court pursuant to Paragraph III. A. of this Order, respondents shall consent to the following terms and conditions regarding the trustee's powers, duties, authority, and responsibilities:

The Commission shall select the trustee, subject to the consent of respondents, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in acquisitions and divestitures. If respondents have not opposed, in writing, including the reasons for opposing, the selection of any proposed trustee within ten (10) days after notice by the staff of the Commission to respondents of the identity of any proposed trustee, respondents shall be deemed to have consented to the selection of the proposed trustee.
Subject to the prior approval of the Commission, the trustee shall have the exclusive power and authority to divest the Assets To Be Divested.
Within ten (10) days after appointment of the trustee, respondents shall execute a trust agreement that, subject to the prior approval of the Commission and, in the case of a court-appointed trustee, of the court, transfers to the trustee all rights and powers necessary to permit the trustee to effect the divestiture required by this Order.
The trustee shall have twelve (12) months from the date the Commission approves the trust agreement described in Paragraph III. B. 3. to accomplish the divestiture, which shall be subject to the prior approval of the Commission. If, however, at the end of the twelve-month period, the trustee has submitted a plan of divestiture or believes that divestiture can be achieved within a reasonable time, the divestiture period may be extended by the Commission, or, in the case of a court-appointed trustee, by the court; provided, however, the Commission may extend this period only two (2) times.
The trustee shall have full and complete access to the personnel, books, records, and facilities related to the Assets To Be Divested or to any other relevant information, as the trustee may request. Respondents shall develop such financial or other information as such trustee may request and shall cooperate with the trustee. Respondents shall take no action to interfere with or impede the trustee's accomplishment of the divestiture. Any delays in divestiture caused by respondents shall extend the time for divestiture under this Paragraph in an amount equal to the delay, as determined by the Commission or, for a court-appointed trustee, by the court.
The trustee shall use his or her best efforts to negotiate expeditiously the most favorable price and terms available in each contract that is submitted to the Commission, subject to respondents’ absolute and unconditional obligation to divest expeditiously at no minimum price. The divestiture shall be made in the manner and to the acquirer as set out in Section II of this Order; provided, however, if the trustee receives bona fide offers from more than one acquiring entity, and if the Commission determines to approve more than one such acquiring entity, the trustee shall divest to the acquiring entity or entities selected by respondents from among those approved by the Commission.
The trustee shall serve, without bond or other security, at the cost and expense of respondents, on such reasonable and customary terms and conditions as the Commission or a court may set. The trustee shall have the authority to employ, at the cost and expense of respondents, such consultants, accountants, attorneys, investment bankers, business brokers, appraisers, and other representatives and assistants as are necessary to carry out the trustee's duties and responsibilities. The trustee shall account for all monies derived from the divestiture and all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court, of the account of the trustee, including fees for his or her services, all remaining monies shall be paid at the direction of the respondents, and the trustee's power shall be terminated. The trustee's compensation shall be based at least in significant part on a commission arrangement contingent on the trustee's divesting the Assets To Be Divested.
Respondents shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, liabilities, or expenses arising out of, or in connection with, the performance of the trustee's duties, including all reasonable fees of counsel and other expenses incurred in connection with the preparation for, or defense of any claim, whether or not resulting in any liability, except to the extent that such liabilities, losses, damages, claims, or expenses result from misfeasance, gross negligence, willful or wanton acts, or bad faith by the trustee.
If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in Paragraph III. A. of this Order.
The Commission or, in the case of a court-appointed trustee, the court, may on its own initiative or at the request of the trustee issue such additional orders or directions as may be necessary or appropriate to accomplish the divestiture required by this Order.
The trustee shall have no obligation or authority to operate or maintain the Assets To Be Divested.
The trustee shall report in writing to respondents and the Commission every sixty (60) days concerning the trustee's efforts to accomplish divestiture.

IV.

IT IS FURTHER ORDERED that respondents shall, for a period of one year from the date of the divestiture pursuant to this Order, or for such shorter period as the acquirer shall determine, make available, at no cost to the acquirer, such technical assistance and know-how as the acquirer shall require to enable the acquirer to produce Dewar’s Scotch or Bombay gin according to current production processes and formulas.

IT IS FURTHER ORDERED that, within sixty (60) days after the date this Order becomes final and every sixty (60) days thereafter until respondents have fully complied with the provisions of Sections II, III, and IV of this Order, respondents shall submit to the Commission a verified written report setting forth in detail the manner and form in which they intend to comply, are complying, and have complied with Sections II, III, and IV of this Order. Respondents shall include in their compliance reports, among other things that are required from time to time, a full description of the efforts being made to comply with Sections II, III, and IV of the Order, including a description of all substantive contacts or negotiations for the divestiture and the identity of all parties contacted. Respondents shall include in their compliance reports copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning divestiture.

VI.

IT IS FURTHER ORDERED that respondents shall notify the Commission at least thirty (30) days prior to any proposed change in the respondents such as dissolution, assignment, sale resulting in the emergence of a successor entity, or the creation or dissolution of subsidiaries or any other change that may affect compliance obligations arising out of the Order.

VII.

IT IS FURTHER ORDERED that, for the purpose of determining or securing compliance with this Order, upon written request to counsel, respondents shall permit any duly authorized representative of the Commission:

A. Access, during office hours and in the presence of counsel, to inspect any facility and to inspect and copy all books, ledgers, accounts, correspondence, memoranda, and other records and documents in the possession or under the control of respondents relating to any matters contained in this Order; and

B. Upon five days' notice to counsel for respondents and without restraint or interference from respondents, to interview officers, directors, or employees of respondents, who may have counsel present.

Signed this _____ day of _______________, 19____.

GUINNESS PLC,

By: ________________________

________________________

Counsel for Guinness PLC

GRAND METROPOLITAN PLC,

By: ________________________

________________________

Counsel for Grand Metropolitan PLC

FEDERAL TRADE COMMISSION

By: ________________________

Joseph Brownman
Attorney
Bureau of Competition

APPROVED:

____________________

Phillip L. Broyles
Assistant Director
Bureau of Competition

______________________

George S. Cary
Senior Deputy Director
Bureau of Competition

____________________

William J. Baer
Director
Bureau of Competition

Appendix I

UNITED STATES OF AMERICA

BEFORE

FEDERAL TRADE COMMISSION

In the matter of

GUINNESS PLC, a corporation, and GRAND METROPOLITAN PLC, a corporation.

File No. 971 0081

ASSET MAINTENANCE AGREEMENT

This Asset Maintenance Agreement is by and among Guinness plc ("Guinness"), a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom, with its office and principal place of business located at 39 Portman Square, London, England W1H 0EE, Grand Metropolitan plc ("Grand Met"), a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom with its office and principal place of business located at 8 Henrietta Place, London, England W1M 9AG, the successor of Guinness and Grand Met, Diageo, and the Federal Trade Commission, an independent agency of the United States Government, established under the Federal Trade Commission Act of 1914, 15 U.S.C. § 41, et seq.

Premises For Agreement

WHEREAS, Guinness and Grand Met, pursuant to an agreement dated May 11, 1997, agreed to merge; and

WHEREAS, the Commission is now investigating the proposed merger to determine if it would violate any of the statutes enforced by the Commission; and

WHEREAS, the Commission has reason to believe that the agreement would violate Section 5 of the Federal Trade Commission Act, and that the merger contemplated by the agreement, if consummated, would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act, statutes enforced by the Commission; and

WHEREAS, if the parties accept the attached Agreement Containing Consent Order, the Commission is required to place it on the public record for a period of sixty (60) days for public comment and may subsequently withdraw such acceptance pursuant to the provisions of Section 2.34 of the Commission's Rules; and

WHEREAS, the purpose of this agreement and of the consent order is to preserve the Assets To Be Divested pending the divestiture to the acquirer approved by the Commission under the terms of the Order, in order to remedy any anticompetitive effects of the merger; and

WHEREAS, Guinness’s and Grand Met’s entering into this agreement shall in no way be construed as an admission by Guinness or Grand Met that the proposed merger is illegal; and

WHEREAS, no act or transaction contemplated by this agreement shall be deemed immune or exempt from the provisions of the antitrust laws, or the Federal Trade Commission Act, by reason of anything contained in this agreement;

NOW, THEREFORE, in consideration of the Commission's agreement that, unless the Commission determines to reject the consent order, it will terminate Guinness’ obligation to give twenty (20) days’ notice to the Commission’s staff prior to consummating the merger with Grand Met, the parties agree as follows:

Terms Of Agreement

1. Guinness and Grand Met agree to execute, and upon acceptance by the Commission of the Agreement Containing Consent Order for public comment agree to be bound by, the attached Consent Order.

2. Unless the Commission brings an action to seek to enjoin the proposed merger pursuant to Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), and obtains a temporary restraining order or preliminary injunction blocking the proposed merger, Guinness and Grand Met will be free to close the merger after 11:59 p.m. on the date the Commission accepts the Consent Order for public comment.

3. Guinness and Grand Met agree that from the date this Agreement is accepted until the earliest of the dates listed in subparagraphs 3.a - 3.b they will comply with the provisions of this Agreement:

a. three business days after the Commission withdraws its acceptance of the Consent Order pursuant to the provisions of Section 2.34 of the Commission's Rules; or

b. on the day the divestitures set out in the Consent Order have been completed.

4. From the time Guinness and Grand Met sign this Agreement until the divestitures set out in the Consent Order have been completed, Guinness, Grand Met, and Diageo shall take such actions as are necessary to maintain the viability and marketability of the Assets To Be Divested and the ability to compete at the same levels of sales, profitability, and market share as prior to the merger, subject to prevailing market conditions, and to prevent the destruction, removal, wasting, deterioration, or impairment of any of the Assets To Be Divested except for ordinary wear and tear.

5. Should the Federal Trade Commission seek in any proceeding to compel Guinness, Grand Met, or Diageo to divest themselves of the Assets To Be Divested or to seek any other injunctive or equitable relief, Guinness, Grand Met, and Diageo shall not raise any objection based upon the expiration of the applicable Hart-Scott-Rodino Antitrust Improvements Act waiting period or the fact that the Commission has not sought to enjoin the merger. Guinness, Grand Met, and Diageo also waive all rights to contest the validity of this Agreement.

6. For the purpose of determining or securing compliance with this Agreement, subject to any legally recognized privilege, and upon written request with reasonable notice to counsel for Guinness, Grand Met, and Diageo, the aforesaid Guinness, Grand Met, and Diageo shall permit any duly authorized representative or representatives of the Commission:

a. access during the office hours of Guinness or Grand Met or Diageo, in the presence of counsel, to inspect any facility and to inspect and copy all books, ledgers, accounts, correspondence, memoranda, and other records and documents in the possession or under the control of Guinness or Grand Met or Diageo relating to compliance with this Agreement; and

b. upon five (5) days' notice to counsel for Guinness or Grand Met or Diageo and without restraint or interference from them, to interview officers or employees of Guinness, Grand Met, and Diageo, who may have counsel present, regarding any such matters.

7. This Agreement shall not be binding until approved by the Commission.

Dated: ________________

FOR GUINNESS PLC

By: ________________________

(name)

________________________

Counsel for Guinness

FOR GRAND METROPOLITAN PLC

By: ________________________

(name)

________________________

Counsel for Grand Met

FOR THE FEDERAL TRADE COMMISSION

___________________

Debra A. Valentine
General Counsel

UNITED STATES OF AMERICA

BEFORE

FEDERAL TRADE COMMISSION

In the matter of

GUINNESS PLC, a corporation, and GRAND METROPOLITAN PLC, a corporation.

Docket No. ________

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act and the Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission, having reason to believe that Guinness plc ("Guinness") and Grand Metropolitan plc ("Grand Met") have entered into an agreement in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and that the terms of such agreement, were they to be satisfied, would result in a violation of Section 5 of the Federal Trade Commission Act and Section 7 of the Clayton Act, 15 U.S.C. § 18, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

I. Respondent Guinness plc

1. Respondent Guinness is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom with its office and principal place of business located at 39 Portman Square, London, England W1H 0EE.

2. Among other things, Respondent Guinness, through United Distillers, a wholly-owned subsidiary corporation, produces and sells Scotch from distilleries located in Scotland and gin from distilleries located in England.

3. Respondent Guinness had total sales, for all products, of about $8 billion in 1996. Respondent Guinness’ United States sales of all products totaled about $645 million in 1996.

4. Respondent Guinness is, and at all times relevant herein has been, engaged in the sale and distribution of distilled spirits, including "premium Scotch" and "premium gin," in the United States. Respondent Guinness’ premium Scotch brands in the United States are Johnnie Walker Red and Dewar’s White Label. Respondent Guinness’ premium gin brands in the United States are Tanqueray gin and Tanqueray Malacca gin.

5. Respondent Guinness is, and at all times relevant herein has been, engaged in commerce, or in activities affecting commerce, within the meaning of Section 1 of the Clayton Act, 15 U.S.C. § 12, and Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.

II. Respondent Grand Met

6. Respondent Grand Met is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom with its office and principal place of business located at 8 Henrietta Place, London, England W1M 9AG.

7. Among other things, Respondent Grand Met, through International Distillers and Vintners, a wholly-owned subsidiary corporation, produces and sells Scotch from distilleries located in Scotland and gin from distilleries located in England.

8. Respondent Grand Met had total sales, for all products, of about $14 billion in 1996. Respondent Grand Met’s United States sales of all products totaled about $8 billion in 1996.

9. Respondent Grand Met is, and at all times relevant herein has been, engaged in the sale and distribution of distilled spirits, including "premium Scotch" and "premium gin," in the United States. Respondent Grand Met’s premium Scotch brands in the United States include J&B Rare, J&B Select, and The Famous Grouse. Respondent Grand Met’s premium gin brands in the United States are Bombay Original and Bombay Sapphire.

10. Respondent Grand Met is, and at all times relevant herein has been, engaged in commerce, or in activities affecting commerce, within the meaning of Section 1 of the Clayton Act, 15 U.S.C. § 12, and Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.

III. The Merger

11. On or about May 11, 1997, Respondents Guinness and Grand Met executed an agreement to merge their two companies. The value of the merger, measured by the aggregate market capitalization, is approximately $36 billion.

IV. Trade and Commerce

A. Relevant Product Markets

12. Relevant product markets in which it is appropriate to assess the effects of the proposed merger include (a) premium Scotch and (b) premium gin. Product markets broader than premium Scotch and premium gin may also exist. Total United States sales for premium Scotch are about 3.2 million 9-liter case equivalents, which represents over $600 million in retail sales. Total United States sales of all premium gin is about 2.2 million 9-liter case equivalents, which represents over $400 million in retail sales.

13. Premium Scotch is blended Scotch whisky that is made and bottled in Scotland, generally advertised, promoted, and available throughout the United States, and sold at retail at prices comparable to the prices of the Johnnie Walker Red, Dewar’s White Label, and J&B Rare brands.

14. Premium gin is gin that is made and bottled in England, generally advertised, promoted, and available throughout the United States, and sold at retail at prices comparable to the prices of Tanqueray, Bombay Original, and Bombay Sapphire brands.

B. Relevant Geographic Markets

15. The relevant geographic market in which it is appropriate to assess the effects of the proposed merger is the United States.

C. Conditions of Entry

16. Entry into the relevant markets would not be timely, likely, or sufficient to prevent anticompetitive effects.

V. Market Structure

17. The relevant markets are highly concentrated, whether measured by the Herfindahl-Hirschman Index (or “HHI”) or by two-firm and four-firm concentration ratios. The proposed merger, if consummated, will substantially increase that concentration.

18. In the premium Scotch product market, Respondent Guinness is the largest competitor in the United States with about a 68% share and Respondent Grand Met is the second largest, with about a 24% share. Together, they will control approximately 92% of all United States premium Scotch sales. The proposed merger, would increase the HHI by over 3000 points and produce an industry concentration of over 8000 points.

19. In the premium gin market, Respondent Guinness is the largest competitor in the United States with about a 58% share and Respondent Grand Met is the third largest, with about a 15% share. Together, they will control approximately 73% of all United States premium gin sales. The proposed merger would increase the HHI by over 1700 points and produce an industry concentration of over 6000 points.

VI. Effects of the Merger

20. The merger may substantially lessen competition in the relevant markets in the following ways, among others:

(a) by eliminating direct competition between Guinness and Grand Met;

(b) by increasing the likelihood that respondents will unilaterally exercise market power; and

(c) by increasing the likelihood of, or facilitating, collusion or coordinated interaction;

each of which increases the likelihood that the prices of premium Scotch and premium gin will increase.

VII. Violations Charged

21. The agreement entered into between Respondents Guinness and Grand Met for their merger constitutes a violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45. Further, if the merger is consummated, Guinness and Grand Met would be in violation of Section 5 of the Federal Trade Commission Act and Section 7 of the Clayton Act, 15 U.S.C. § 18.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this ______ day of _____________, 19____, issues its Complaint against Respondents Guinness and Grand Met.

By the Commission,

____________________

Donald S. Clark
Secretary

ISSUED: _________________

[SEAL]

ANALYSIS TO AID PUBLIC COMMENT ON

THE PROVISIONALLY ACCEPTED CONSENT ORDER

The Federal Trade Commission has accepted for public comment from Guinness plc ("Guinness") and Grand Metropolitan plc ("Grand Met") an Agreement Containing Consent Order ("Proposed Consent Order"). The Proposed Consent Order remedies the likely anticompetitive effects arising from the proposed merger of Guinness and Grand Met in two relevant product markets. This agreement has been placed on the public record for sixty (60) days for receipt of comments from interested persons.

Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the agreement and the comments received, and will decide whether it should withdraw from the agreement or make final the consent order in the agreement.

According to the draft of complaint that the Commission intends to issue, Guinness and Grand Met are competitors in the sale and distribution in the United States of premium Scotch and premium gin. The premium Scotch products of Guinness include Johnnie Walker Red and Dewar’s White Label and the premium Scotch brands of Grand Met include J&B Rare, J&B Select, and The Famous Grouse. The premium gin brands of Guinness include Tanqueray gin and the premium gin brands of Grand Met are Bombay Original and Bombay Sapphire.

The Commission's draft of complaint states that Guinness and Grand Met entered into an agreement to merge their companies on May 11, 1997. The size of the transaction, measured in terms of the market capitalization of both parties, is about $36 billion.

The Commission is concerned that the proposed merger would eliminate substantial competition between Guinness and Grand Met, and increase concentration substantially, in the very highly concentrated premium Scotch and premium gin markets, resulting in higher prices. The Commission stated it has reason to believe that the proposed merger would have anticompetitive effects and violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act.

In the United States premium Scotch market, Guinness is the largest competitor with about 68% of all sales and Grand Met is the second largest competitor, with about 24% of sales. Together, the merged firm will control approximately 92% of all United States premium Scotch sales. The proposed merger would increase the Herfindahl-Hirschman Index ("HHI"), the customary measure of industry concentration, by over 3000 points and produce a market concentration of over 8000 points. In the United States premium gin market, Guinness is the largest competitor with about 58% of all sales and Grand Met is the third largest, with about 15% of sales. Together, the merged firm will control approximately 73% of all United States premium gin sales. The proposed merger would increase the HHI by over 1700 points and produce a market concentration of over 6000 points.

The Proposed Consent Order, if finally issued by the Commission, would settle all of the charges alleged in the Commission's complaint. Under the terms of the Proposed Consent Order, Guinness and Grand Met will be required to divest their Dewar’s Scotch, Bombay Original gin, and Bombay Sapphire gin brands, worldwide, to one or two acquirers acceptable to the Commission. To insure an uninterrupted supply of Dewar’s Scotch after the brand divestiture, Guinness will be required to divest additional assets, including Scotch distilling capacity, if the Commission should determine that these additional assets are necessary for the acquirer effectively to compete. Also, to insure an uninterrupted supply of Bombay Original and Bombay Sapphire gins, Guinness and Grand Met may be required to produce these gins for the acquirer, in England, should the independent third party that has been producing Bombay Original and Bombay Sapphire for Grand Met not wish to continue to do so for the acquirer.

Guinness and Grand Met will be required to complete the required divestitures within six (6) months from the date of the Commission's acceptance of the consent order for public comment. In the event Guinness and Grand Met do not divest Dewar’s, Bombay Original, and Bombay Sapphire to an acquirer or acquirers acceptable to the Commission in the requisite time, procedures for the appointment of a trustee to sell the assets have been agreed to and will be triggered.

Accompanying the Proposed Consent Order is an Asset Maintenance Agreement. Under its terms, Guinness and Grand Met are required to preserve and maintain the competitive viability of all of the assets to be divested in order to insure that the competitive value of these assets will be maintained after the merger but before the assets are actually divested.

By accepting the Proposed Consent Order subject to final approval, the Commission anticipates that the competitive problems alleged in the complaint will be resolved. The purpose of this analysis is to invite and facilitate public comment concerning the Proposed Consent Order. It is not intended to constitute an official interpretation of the Proposed Consent Order, nor is it intended to modify the terms in any way.