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Diageo shares up over bid reports

Published 08/06/2015

Diageo, which makes Johnnie Walker whisky, is one of the world's largest producer of spirits
Diageo, which makes Johnnie Walker whisky, is one of the world's largest producer of spirits

Shares in Guinness maker Diageo built up a head today as investors responded to reports that Brazil's richest man was preparing a bid for the British drinks maker.

Stock in the London-listed firm jumped 7% after reports in Brazilian newsweekly Veja that billionaire Jorge Paulo Lemann and his partners in private equity firm 3G Capital were considering a bid for the drinks firm valued at £47 billion.

New York-listed shares in the group had already leapt last Friday after the reports emerged - though they were too late for the London market, which had already closed.

Diageo, which also makes Johnnie Walker whisky and Smirnoff vodka, is one of the world's largest producer of spirits.

In April, it said its sales fell 0.3% in the first nine months of its year, while volumes were down 1.7% over the same period, due to flagging global demand and a weak economic recovery.

Diageo refused to comment on the takeover speculation.

Brokers are cautious over the likelihood of such a deal.

Shore Capital analyst Phil Carroll said Diageo "is trading at a discount to most of the large cap beverage companies - excluding Carlsberg - and is going through something of a transition so that could be perceived as an opportunity."

Brokers at Jefferies said a purchase of Diageo "would be comfortably the biggest ever and well beyond anything 3G have previously contemplated."

But Jefferies added that a move for Diageo by Anheuser-Busch InBev, supported by 3G Capital "feels more plausible".

Anheuser-Busch InBev is the world's largest brewer and includes such brands as Stella Artois, Budweiser and Beck's.

Lemann and 3G Capital have snapped up a number of household names in recent years.

In March it bought US-based Kraft Foods and combined it with the Heinz food business in a 46 billion dollar (£30 billion) merger. It had bought Heinz two years earlier. Its partner in both deals was US businessman Warren Buffett's Berkshire Hathaway investment group.

3G Capital also bought US fast food restaurant chain Burger King from Diageo in 2010.

Harvard-educated Lemann is the chief investor and strategist at 3G Capital. His equity company controlled 65% of the Brazilian beer market before embarking abroad to merge with Belgium's Interbrew in 2004 to form InBev, which bought US brewer Anheuser-Busch in 2008.

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