Guinness Admits Illegal Repurchase of Its Stock

Guinness PLC, the embattled British brewing giant, admitted Friday that it illegally arranged to repurchase its shares during a takeover battle last year.

The announcement was Guinness’ first acknowledgment of wrongdoing since a scandal erupted six weeks ago over Guinness’ acquisition of Distillers Co. PLC for $3.8 billion last April.

The controversy was triggered by a government investigation into the possibility that Guinness illegally manipulated its stock during the takeover fight, in which Guinness outlasted rival bidder Argyll Foods PLC.

Guinness’ announcement Friday was part of the brewer’s attempt to repair the scandal’s damage, which has sent the price of Guinness’ stock tumbling. The company already has ousted four of its directors, including Chairman and Chief Executive Ernest Saunders.

Guinness’ best-known beverage is its stout, which is sold in 140 countries. In buying Distillers, Guinness also acquired such top-selling Scotch whiskys as Dewar’s and Johnnie Walker.

Sir Norman Macfarlane, Guinness’ new acting chairman, disclosed the company’s wrongdoing in a letter to shareholders, saying that Bank Leu AG of Switzerland had purchased a major block of Guinness shares as part of an agreement with Guinness.

Guinness offered a package of stock and cash for Distillers. Guinness therefore had incentive to keep its share price high, which could be accomplished through the repurchases, which tend to lift the price of the remaining stock outstanding.

In his letter, Macfarlane said the agreement under which Bank Leu bought the stock was “an agreement which, at least as regards its own shares, Guinness could not lawfully have fulfilled.”

He said the agreement was signed on Guinness’ behalf by Thomas Ward or Olivier Roux. Ward, an American lawyer, was asked to resign as a Guinness director earlier this week, and Roux resigned as a director last Sunday.

The fourth director asked to quit was Bank Leu Chairman Arthur Fuerer.

In Zurich, Bank Leu executives confirmed the purchases under the Guinness agreement. But Bank Leu President Hans Knopfli denied that the bank had done anything illegal.