Diageo Plc, the maker of Guinness stout and Johnnie Walker whisky, surged in early London trading on a report that Brazilian billionaire Jorge Paulo Lemann is considering a takeover bid.
Lemann and other executives are in early stages of mulling an acquisition, according to Veja columnist Lauro Jardim. A spokeswoman for Lemann declined to comment, as did a representative for London-based Diageo.
Diageo shares rose 8.7 per cent to 1,914 pence at 8.05 a.m., the steepest gain since November 2008. That valued the company at about £48 billion ($73 billion).
Veja’s report fuelled renewed speculation of takeover activity in an industry where consolidation has been rife. Diageo has played its part in that, last year gaining control of India’s United Spirits Ltd. Still, the chances of an offer for the maker of Smirnoff vodka remain slim, according to analysts at Jefferies.
“A pure LBO would be a huge stretch,” the analysts said in a note. 3G would need to raise about £48 billion, more than double the equity component of the biggest leveraged buyout in history, TXU Corp. in 2007, they said.
Diageo’s current price-to-earnings ratio and the bid premium that would be required also mean that it’s unclear how attractive the financial returns would be, Jefferies said. The shares trade at about 23 times historical earnings.
Lemann’s company, 3G Capital, has used a series of transactions to expand its stable of household names, often working with Warren Buffett’s Berkshire Hathaway, Inc. The private-equity firm orchestrated a deal last year to combine Burger King Worldwide Inc. with Tim Hortons Inc., a coffee-and-doughnut chain. It previously teamed up with Berkshire to acquire H.J. Heinz and is now merging that company with Kraft Foods Group, Inc.
Lemann and his partners have also profited from consolidation in the alcoholic beverage industry. They combined Latin American brewers, then engineered an $11 billion merger with Belgium’s Interbrew NV in 2004. In 2008, they led the $52 billion union with Anheuser-Busch Cos. to form the world’s largest beer manufacturer, Anheuser-Busch InBev NV.
Bloomberg News, edited by ESM