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Raft of deals in the offing

Are we approaching a new round of consolidation among the big drinks producers? The tempo of reports about rivals sizing up assets is picking up.

A number of overtures have been made already and if all the rumoured and mooted bids turn out to be based on fact then the landscape could change dramatically.

Battle has already commenced for ownership of Foster’s, Australia’s biggest brewer, following the near-AU$10 billion bid from SABMiller, the world number two. The bid has been rejected and skirmishing is likely to continue for several months as other potential suitors consider their options.

In East Africa, however, Diageo’s efforts to bolster its control of the market have suffered a setback at the hands of the Ethiopian government. Diageo’s East African Breweries is a key route to market for all its products and earlier this month Diageo began to unravel a reciprocal deal with SABMiller by buying the latter’s 20% stake.

That would create extra competition in the region – which Diageo sees as a strategic centre of growth – but that strategy has been dealt a blow by the Ethiopian government’s decision not to let Diageo take control of one its largest brewers for US$200 million, preferring to sell to Heineken.

But Diageo has numerous other irons in the fire designed to bolster its position as the world’s leading drinks group. This year it has already bought Turkey’s foremost spirits producer, Mey Icki; it is still awaiting approval from Beijing for its £624m bid for one of the country’s largest distillers, Shui Jing Fang; it is exercising its option to buy a 50% stake in Guatemala’s Zacapa rum brand; and it is said to be in discussions about buying José Cuervo Tequila, which it already distributes.

At the same time it is mulling an option to spend $900m on the 50% of Ketel One vodka it doesn’t already own. So Diageo is being highly active, even without the perennial interest in Moët Hennessy or a mention of any participation in a possible break up of Beam Global once that receives a separate Wall Street listing.

Beam itself might go on the acquisition and merger trail simply to deter potential bidders. A link with Brown-Forman to form an American spirits giant based on bourbon and whiskey is being regularly mooted, despite potential regulatory problems in Washington. Meanwhile, Bacardi is forging closer links with Sapporo in Japan.

In Europe both Rémy Cointreau and Davide Campari have announced that they have war chests available should a suitable target be identified, and although Pernod Ricard has ruled itself out of major acquisitions until next year, it is inconceivable that it would sit on the sidelines if the right opportunity presented itself. Indeed, it is also inconceivable that it is not identifying targets (such as a major Tequila brand) during its period of financial purdah.

All the global groups want to augment their positions in growing markets, especially through acquisition of strategic local premium brands, and most have strong balance sheets with which to finance them. We are entering an interesting 12 months.

Finance on Friday, 24.06.2011

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