Saturday 21 October 2017

Guinness stout could be sold by UK owner Diageo in €10bn deal

More brewing mega mergers may put both the Guinness and Smithwicks brands on the block

Guinness is owned by British company Diageo
Guinness is owned by British company Diageo

Ben Martin

Iconic Irish stout Guinness could be sold by its British owner Diageo as part of a €10bn deal to offload the multinational drink giant's beer business, according to analysts, amid mounting speculation about the next major deal to shake up the brewery industry.

Heineken has been suggested by some commentators as a potential buyer for some of Diageo's beer brands, subject to any such deal vaulting extensive competition hurdles.

Diageo told the Sunday Independent last week that it would not make a comment on what it termed "speculation".

Anheuser-Busch InBev - the beer giant behind Stella Artois and Budweiser - kicked off the latest round of brewery consolidation with its €92bn takeover of Peroni and Foster's owner SABMiller. The acquisition is expected to trigger a series of deals to satisfy regulators, with SAB's stake in its MillerCoors US joint venture, worth about €9.5bn, and its interest in Snow, the Chinese lager that is the world's biggest-selling beer, both likely to be sold.

Diageo, the FTSE 100 drinks giant that makes most of its profits from spirits, could also join the fray by offloading its beers - which include Guinness, Smithwick's, Kilkenny and a range of brands that are popular across Africa - Bernstein analyst Trevor Stirling said.

"Every asset has its price if there is a purchaser willing to pay a premium to fair value for the assets, including the tax benefits, which we estimate could be worth up to €10bn," he said.

Given the differences in production and distribution, "beer and spirits do not mix in mature markets", according to Mr Stirling.

Furthermore, beer businesses in emerging markets are attractive in their own right "especially given the long-term growth potential in Africa", the analyst added.

One of the main drivers of AB InBev's acquisition of SAB is to take control of the Peroni brewer's extensive African operations - and Guinness also has a huge following on the continent.

Mr Stirling does not believe that a sale of Diageo's brewing business is likely in the "near-medium term" and Ivan Menezes, boss of the drinks company, said in July: "Beer is core to the company."

However, the analyst suggested that Heineken was a possible buyer for the brewery operations further into the future, although it is likely to face competition hurdles in Ireland.

AB InBev is another potential suitor and could acquire the assets once it has "digested" SAB.

It is possible that Diageo was eyeing a sale of its beer businesses to SAB before AB InBev "intervened" with its takeover of the Peroni brewer, the analyst added.

Diageo has already embarked on a spate of disposals. Last week, it sold the majority of its wine business to Australia's Treasury Wine Estates for about €433m and in July it offloaded the Gleneagles Hotel.

The drinks company has also struck a series of beer deals with Heineken recently. It ended its joint ventures with the Dutch brewer in Namibia and South Africa two months ago and last week swapped beer assets, in a transaction that resulted in Diageo selling out of Desnoes & Geddes, the Jamaican brewer behind Red Stripe.

"Red Stripe has always been non-core to Diageo," a source familiar with the company's thinking said.

"All of a sudden getting this done now could be a coincidence, or perhaps it could be because they are getting pressure" and want to show they are serious about thinning the beer portfolio, according to a US news report.

(additional reporting by Nick Webb)

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