Diageo shares surge on report of possible takeover interest

Shares in Guinness parent Diageo, the world's largest spirits maker, rose about 7 per cent on Monday following a report in the Brazilian press saying private equity firm 3G Capital was considering a bid for it.

Brazilian billionaire Jorge Paulo Lemann and his partners in 3G, Marcel Telles and Carlos Alberto Sicupira, are in the initial stages of studying a buyout offer for Diageo, the Veja newsweekly reported late on Friday, without saying how it obtained the information.

The three former investment bankers helped build up Anheuser Busch InBev into the world’s biggest brewer. They subsequently performed leveraged buyouts of Burger King and Heinz, and are now merging Heinz with Kraft Foods.

But a leveraged buyout of Diageo would be the largest in history and well beyond anything 3G has done, said Jefferies analysts, who estimated that the buyout firm would need to raise $73 billion in equity, assuming a 30 per cent premium to Diageo’s stock price and six times leverage.

“What might be more likely is that 3G might be contemplating supporting a move for Diageo by AB InBev, in which [Mr] Lemann and [Mr] Telles have substantial stakes,” Jefferies said, adding that AB InBev might see synergies in selling beer and spirits.

Diageo, the maker of Johnnie Walker whisky, Tanqueray gin and Guinness, declined to comment on the Brazilian report, which could not be independently verified.

A New York-based spokesman for 3G could not immediately be reached for comment outside of normal working hours. Belgium-based AB InBev, which was also not immediately available to comment, does frequent acquisitions and has long been rumoured to be eyeing rival brewer SABMiller.

Diageo is smaller than SABMiller, making a deal more affordable, and would also offer margin enhancement opportunities through cost cuts, said Bernstein analysts, adding also that there are parts of Diageo that could be sold off to pay back debt.

Media reports earlier this year said Diageo was already considering the possible divestment of its Gleneagles Hotel for around £200 million and its wine business. – Reuters