Comment - Wehring's Way - Diageo Keen on Beam? Not Right Now
Hats off to the Sunday Telegraph for breaking the story today (9 December) that Diageo has been sniffing around Beam Inc. The report clams that the drinks giant held talks with Suntory about working together to break up the US-based spirits firm. Uncited – and unquoted – sources also say that Diageo has approached private equity firms.
That Beam is on the drinks industry's M&A radar is a well-worn groove. Since it rose out of the ashes of Fortune Brands last year, many spectators have suggested the publicly-listed firm will eventually fall to an existing player keen to up its presence in Bourbon.
But, while I'm not suggesting Diageo and Suntory haven't discussed Beam, there are three reasons that make me think these “talks” may be over-stated.
First up, it's Tequila. Diageo has spent the last 15 years working with the Beckmann family to sell, market and distribute the latter's Jose Cuervo brand globally, except in Mexico. The existing deal expires in June, and Diageo would prefer some form of brand ownership rather than a renewal. One of Beam's flagship brands, meanwhile, is the Sauza Tequila brand. Anti-trust authorities in the US – the largest Tequila market outside Mexico – would not permit Diageo to own both. I would expect, then, that the negotiations with the Beckmanns will move up a gear or two in the coming days thanks to today's news.
Secondly, the lack of quotes in the Telegaph's report jars with me, as does the scant detail behind the talks – Where? Which people? What decision? And, while one wouldn't expect sources to be named in stories like these, that “bankers at Goldman Sachs, Citigroup and UBS have been advising Diageo on the potential acquisition and the talks with Suntory” could suggest that these banks are looking to drum up some business in the run-up to Christmas.
Finally, I'd question the timing of all this. It was only a month ago that Diageo finally secured a deal to take majority control of United Spirits in India. And, it was less than seven months ago that it bought the Ypióca cachaça brand in Brazil. A third sizeable transaction within a year would hark back to the heady, pre-meltdown days of the early 2000s, when the likes of Constellation Brands struggled to detail year-on-year performance due to the number of purchases they'd been making in the period.
There is no doubt that Diageo would love to have the type of position in Bourbon held by Beam with its namesake Jim Beam brand. And, everything else in US firm's stable is of markedly less interest to the drinks giant. But, there's too much about today's report that makes me think that Beam still has some distance left to run.
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