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Diageo and SABMiller ‘should merge’

Diageo and SABMiller could boost their profits by nearly a fifth and see off a much-feared AB InBev takeover if they choose to merge, analysts say.

A merger would be the best option for the two companies given the current climate, Nomura said (Photo: Wiki)
A merger would be the best option for the two companies given the current climate, Nomura said (Photo: Wiki)

A merger between Diageo and SABMiller – two of the world’s largest alcohol companies – would also face few regulatory hurdles, financial services firm Nomura said.

It claimed that a global economic slowdown and the threat of an AB InBev buyout, especially to SAB Miller, means that a 50/50 fusion between it and Diageo – to create “SABGEO” – is a sound strategy.

“We would see this as a similar move to the creation of Diageo from the merger of Guinness and Grand Metropolitan in 1998,” Nomura said.

“We estimate that with around 50/50 emerging and mature market split of profits, a merged group could offer a firmer profit base in uncertain times (for SABMiller holders) and potentially increase its growth profile in the longer term (for Diageo holders).”

On the estimated financial benefit to the companies, it said, “With broadly similar market capitalisations, we see such a deal adding 18% to combined net profits, assuming £1 billion of cost synergies and some benefit on tax, with minimal regulatory issues to subtract value.”

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