Deal fantasies
In the meantime, Diageo, the world’s number one drinks company, is biding its time hoping that eventually it will be able to take full control of drinks company Moet-Hennessy, which is still majority-owned by LVMH Chairman Bernard Arnault. Matrix thinks the 66 percent of Moet-Hennessy that Diageo doesn’t own is valued at around EUR 12.6 billion.
But the idea of Diageo lining up with a beer business to create a diversified alcohol business was also discussed, said Matrix.
According to British media sources which obtained a copy of Matrix’ report, the bankers believe that should AB-InBev continue to consolidate the alcohol industry, its obvious targets are SABMiller (first) and Diageo (second).
To prevent being taken over by AB-InBev, the bankers argue Diageo could try to merge either with SABMiller or with Heineken.
“Our impression is”, the bankers wrote, “that Diageo’s door is open to a deal with either company. Following the 1997 creation of Diageo, which was a nil-premium ‘merger of equals’, Diageo sees this as the best route to creating shareholder value in the industry.”
Interestingly, the bankers testify that in the course of their conversation Diageo was much more open to an AB-InBev deal than they had anticipated – although Diageo agreed that the obvious next target for AB-InBev is SABMiller (selling the MillerCoors joint-venture on to Molson Coors as part of the deal).
Would Diageo merge with Heineken to prevent any of this? The very fact that it sees such merit in a deal with AB-InBev or SABMiller suggests that it would not. Equally, it is clear to the market from the structure of the FEMSA acquisition that the Heineken family’s priority is to maintain control. Also, Heineken still lacks a broad emerging market platform from which Diageo’s spirits brands would benefit.
But it appears Diageo is not expecting industry consolidation in the near future, mainly because the major companies – except SABMiller – have fairly stretched balance sheets.
It’s an interesting scenario the Matrix bankers have developed while, let me guess, they were sitting out in the sun drinking copious amounts of Pimm’s. That’s why they forgot about one miniscule detail: anti-trust. I know, the competition watchdogs are a nuisance, but I fear, in this case they could really spoil the fun.
An AB-InBev-SABMiller combination, attractive as it may seem to the bankers who are set to earn billions of dollars in fees from it, would receive a lot of flak from the anti-trust authorities in many markets around the world, not least in China. Besides, what would AB-InBev do with yet more European markets? Isn’t AB-InBev doing its best to extricate itself from Europe?
The same arguments could be held against a Diageo-SABMiller takeover.
Moreover, who says that SABMiller will give up its independence without a fight?
For the record: In July 2010 Diageo’s market capitalisation was USD 41 billion (EUR 33 billion), AB-InBev’s was EUR 67 billion and SABMiller’s GBP 31 billion (EUR 37 billion).
