Comment: Diageo shuts down Guinness and Moët Hennessy sale rumours

Diageo has taken the unusual step for one of the biggest companies quoted on stock markets in both London and New York by flatly denying it is planning a major disposal. Companies habitually respond to rumours by saying they do not comment on speculation, as Diageo initially did on Friday following news agency Bloomberg’s report that it was considering selling Guinness for up to US$10 billion or unloading its 34% stake in Moët Hennessy. 

However, such was the head of steam built up by the ill-founded rumour that the FTSE100 giant felt obliged to scotch it before the markets opened this morning.

“We note the recent media speculation around the Guinness brand and our stake in Moët Hennessy and we confirm that we have no intention to sell either,” the company said on Sunday.

“We will next update the market with interim results on February 4 2025 and we are looking forward to hosting our Guinness investor and analyst day on May 19/20 2025.”

Guinness sales soar

Diageo has been trying to offload under-performing brands such as Pimms and Ciroc vodka but Guinness is a cash cow and in regions with high-growth potential such as sub-Saharan Africa the beer brand has proved a door opener.

Despite that, one City broker issued an analysis last week suggesting that Diageo could consider a major disposal to reinvigorate the group.

Some observers wonder whether the rumours have been nurtured subsequently by investment bankers looking for a big payday on the back of shareholder disappointment or possibly even break-up specialists testing the waters of potential interest.

The shares are almost 40% below their record £40 in 2020 and the forthcoming interim results are widely expected to be downbeat.

Investor sentiment

The crucial North American market remains depressed by consumer resistance to premium pricing and the consequent trend of trading down. At the same time, the company continues to unravel its excess inventory problem in Latin America.

However, the rumours about a potential sale of the beer brand left analysts bemused saying that it did not make sense because of its stellar performance in Diageo’s portfolio.

Guinness sales have grown by double digits every year since 2021 and it is now the biggest selling single beer brand in England, accounting for one in 10 pints sold. 

Its appeal is spreading rapidly to women and in the run-up to Christmas supplies had to be rationed to help spread demand.  

Some said that was a marketing ploy. If it was, it was hugely successful, despite company denials.

Sales of the alcohol-free version are also booming and Diageo’s chief executive Debra Crew said recently: “We can’t make enough of it”.

Diageo strategy

Diageo has a comparatively new team at the helm. Crew took over just over 18 months ago while finance head Nik Jhangiani only moved over from Coca-Cola last autumn.

In addition, the third leg of the corporate triumvirate, chairman Javier Ferran, steps down next month in favour of senior non-executive director Sir John Manzoni. 

Such a major transformation of the portfolio in those fluid circumstances would be unusual.

In addition, what Diageo would do with US$10 billion? It would need to find a plumb investment to boost returns above those that Guinness generates, even if the beer brand’s margins are lower than those earned by premium spirits.

It does not own either a Champagne or a Cognac house but it does own 34% of LVMH’s Moët Hennessy division, the weakest in the LVMH stable.

Arnault’s view

In reality,  Diageo could only sell that stake to Bernard Arnault, CEO of LVMH. Equally, rumours have swirled for more than 20 years that Diageo might wish to take it off his hands but Diageo has effectively closed the door on major change by yesterday’s statement.

Investors question the return on capital. Champagne sales have been dismal for the past two years and Cognac is on the triple rack of dwindling American demand, possible Trump tariffs and China’s penal deposit scheme.

Arnault recently shook up the top management of his drinks empire and we may learn more of his plans tomorrow evening when LVMH announces its annual results.

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