Little hope of Moet move from Diageo

Talk of LVMH selling Moët Hennessy to Diageo has been quelled by the French company following a week of intense speculation that a deal was back on the agenda.

The luxury goods firm increased its stake in Hermes to 17.1% this week and speculators suggested LVMH might sell its drinks arm to Diageo – which has long harboured ambitions to take full control of Moët Hennessy – in order to fund a full takeover.

While analysts agree that a Diageo takeover of Moët Hennessy would be a “match made in heaven”, LVMH reiterated it does not plan to make a bid for Hermes or seek control of the company. Instead, it plans to buy more shares depending on market conditions.

An LVMH statement said: “The investment of LVMH in Hermes International is strategic and for the long term.

“LVMH supports the strategic vision of the development and positioning of Hermes International.”

Bernard Arnault, LVMH chief and majority shareholder, is under no pressure to sell the 66% of Moët Hennessy not already owned by Diageo. The company has relatively low debt and ample funding capacity.

Moreover, analysts predict Diageo would have to pay over €11 billion to take control of Moët Hennessy.

Philip Morrisey at Berenberg Bank values the business at 20 times its historic EBITDA (earnings before interest, tax, depreciation and amortisation) of €852m, putting a price of €17bn on the cognac and champagne business or €11.2bn for the 66% stake Diageo doesn’t own.

Alan Lodge, 28.10.2010