Diageo’s champagne moment
The world’s oldest champagne labels, including Moët & Chandon, Krug, and Dom Pérignon, could become British-owned under a tentative plan for a EUR 12 billion bid by Diageo for the wine and spirits arm of LVMH, the French luxury goods company.
The deal would unite the wine and spirits division of LVMH with brands including Guinness, Smirnoff and Baileys, which are owned by London-listed Diageo. Analysts estimate that LVMH’s wine and spirits division is worth around EUR 10 billion.
Last year LVMH, which also owns Louis Vuitton, Givenchy, TAG Heuer watches, and Donna Karan, generated revenues of EUR 17.2 billion. The group has 77,000 employees worldwide and a retail network of more than 2,300 stores, it was reported.
It boasts 60 brands and is divided into five arms: wines and spirits; perfumes and cosmetics; watches and jewellery; fashion and leather goods, and selective retailing.
The deal, which would be one of the biggest and most high-profile of the year, is expected to be all cash, supported by a potential capital raising to the order of GBP 5 billion by Diageo.
At least one person was convinced that a deal is imminent: Christophe Navarre, President and CEO of Moët Hennessy since 2001. He “defected” to brewer Heineken to become a member of the Supervisory Board of Heineken in March.
The deal would make sense for both parties. Selling Moët Hennessy, Mr Arnault could launch an attack on other fashion labels. Diageo, on the other hand, could re-establish its credentials as the world’s premier drinks company, leaving close rival Pernod Ricard in its wake.
Incidentally, Diageo already owns a 34 percent stake in Moët Hennessy. While this allows Diageo to sell some of the world’s most sought after brands, it gives Diageo actually very little influence over how the business is run.
In recent years, Diageo has seen its position as the world’s major drinks group challenged by European rivals, such as Pernod Ricard. The French group, which in 2005 bought Allied Domecq, has transformed itself from a small French company to an international spirits and wine group. Last year Pernod Ricard took over Sweden’s Vin & Sprit, the maker of Absolut vodka, for EUR 5.6 billion.
The trouble is that while Diageo may be ready to buy Moët Hennessy, Mr Arnault may not be in any hurry to sell it. The key question is whether Mr Arnault can line up a deal in the luxury goods sector first.
Arnault-watchers say that he is not going to sell Moët Hennessy and then put the money in the bank. If he does sell it will only be at the right price and at the right time.
Looks like Diageo will have to bide its time.
