Bank Leu - Involvement in Distillers Company Deal

Involvement in Distillers Company Deal

See also: Guinness share-trading fraud

In 1986, Guinness PLC was in the midst of a bidding war for the much larger Distillers Company. In the closing stages, Guinness' stock rose 25 percent--which was unusual, since the stock of the acquiring company usually falls in a takeover situation. Guinness paid several people and institutions, most notably American arbitrageur Ivan Boesky, about $38 million USD to buy $300 USD million worth of Guinness stock. The effect was to increase the value of its offer for Distillers, whose management favored merging with Guinness.

In the course of the investigation, it emerged that Bank Leu was involved in half of the purchases. Two of Guinness' directors signed under-the-table agreements in which Bank Leu subsidiaries in Zug and Lucerne bought 41 million Guinness shares. Guinness secretly promised to redeem the shares at cost, including commissions. To fulfill its end of the bargain, Guinness deposited $76 million with Bank Leu's Luxembourg subsidiary.

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