Diageo shares jump amid rumours of takeover

8th June, 2015 by Ron Emler

Shares in Diageo jumped by 8% in early trading in London this morning to stand at an 18-month high of £19.00.

size_590_jorge_paulo_lemann

Jorge Paulo Lemann

The surge follows a sharp rise on Wall Street late on Friday after the London market had closed. The reason for the sudden popularity of Diageo was publication of a lone report in Brazil that the country’s richest man, billionaire Jorge Paulo Lemann, might be thinking about putting together a takeover bid for the world’s largest premium alcoholic drinks company.

The report, published by a prominent columnist in Brazil, has not been confirmed and neither Diageo nor Lemann has commented on it.

It said that Lemann might team with the buyout specialist 3G Capital, where he is chief investor and strategist, and the world’s most prominent investor, Warren Buffett, in evaluating whether to attempt to takeover Diageo, which the market values at £45 billion. To be considered, any bidder would need to offer considerably more.

Lemann and Buffett combined to takeover HJ Heinz two years ago. More significantly, Lemann’s equity company controlled 65% of Brazil’s beer market before merging in 2004 with Belgium’s Interbrew to form InBev. That group bought America’s Anheuser-Busch in 2008 to become the world’s biggest brewer.

This is not the first time that speculation has surfaced about a possible bid for Diageo – or at least its beer division. Just over a year ago it was rumoured that Anheuser-Busch InBev and its fierce rival SABMiller wanted Diageo’s iconic Guinness brand plus the group’s African brewing interests to bolster their positions and at the same time thwart each other’s ambitions to expand via acquisition. Anheuser has just over 20% of the global beer market while SABMiller, the second largest brewer, has 9.5%.

Diageo’s beer division, which comprises Guinness plus key interests in Africa, generates about 17% of the group’s net sales, equivalent to about 10m case equivalent of spirits.

In Africa it is seen as giving key routes to market to Diageo’s spirits brands as well as being a valuable asset in its own right. Given that Africa is widely predicted to be the next chapter in the emerging markets growth story, Diageo is thought unlikely to consider selling it at anything less than a massive premium.

However, Diageo’s shares have been slipping for about 18 months, so an opportunistic bid might gain support. Taking over the group in its entirety could be more cost effective pro rata than taking a tilt at the beer arm on its own.

Observers speculate that if Lemann and Buffett were to decide that the target is attractive, the plan would be to fold the beer interests into Anheuser-Busch InBev and leave the spirits empire as a stand-alone company. It would remain the world’s biggest spirits group.

Buffett’s Berkshire Hathaway investment group is famed for taking large stakes in companies with iconic brands in mature markets. For instance, apart from Heinz, it has large holdings in American Express, Coco-Cola and Mars. It is a trademark of Buffet’s investment style to seek out companies that generate large amounts of cash. Diageo fits that profile as each year it generates free cash flow in excess of £1 billion.

In addition, with the trend to premiumisation in spirits predicted to continue, albeit more slowly than previously, and the emerging markets growth story continuing, a revitalised Diageo spirits group could prove an even more attractive cash cow.

Diageo’s chief executive, Ivan Menezes, is trimming annual costs by £200m but perhaps Lemann and Buffett will spot more scope. If they do, a single unconfirmed report of their interest might turn into something more concrete.

One Response to “Diageo shares jump amid rumours of takeover”

  1. C.G. HUNT says:

    Good luck to the vendors and suppliers if these 2 get their hands on the property. When they bought out H.J Heniz, as one of their suppliers we were told that they would pay us in 97 days and if we didn’t like it too bad. I’m sick of these billionaires using small, family owned businesses as their banks.

Leave a Reply

Your email address will not be published. Required fields are marked *

Please note that comments are subject to our posting guidelines in accordance with the Defamation Act 2013. Posts containing swear words, discrimination, offensive language and libellous or defamatory comments will not be approved.

Subscribe to our newsletters

2 x Buying Assistants

Berry Bros. & Rudd
Battersea and Basingstoke, UK

Temporary Christmas Sales Support - Wines & Spirits

Harrods
Knighsbridge, London, UK

Head of Wholesale

Hispamerchants Ltd
London, UK

Sales Manager

Hispamerchants Ltd
London, UK

National Sales Manager

Maverick Drinks
Field based, UK

Regional Sales Executive

EWGA
Gloucestershire, UK

Senior Content Writer

Rude Wines
Ledbury, UK

Events and Trips Manager

Berkmann Wine Cellars
London, UK

Sales Account Manager - On-Trade

Berkmann Wine Cellars
East Scotland, UK

Account Manager Central London

Speciality Drinks Ltd
London, UK

The World Bulk Wine Exhibition

Amsterdam,Netherlands
20th Nov 2017

The Drinks Business Green Awards 2017

London,United Kingdom
20th Nov 2017

The Global Spirits Masters Lunch

London,United Kingdom
1st Dec 2017
Click to view more

Green Awards 2017

Deadline : 21st October 2017

The Global Riesling Masters 2017

Deadline : 30th October 2017

Click to view more

Champagne Masters 2017

The only Champagne blind tasting in the UK, the competition will reward the best wines in the following categories:

The Global Rosé Masters 2017

With wines from the palest of pink to almost ruby red, bone dry to almost cloyingly sweet, reductively handled to barrel-aged, as well as gently spritzy to fully sparkling.

Click to view more