Diageo should give up on Moet Hennessy dream - Deutsche Bank

Diageo should give up on Moet Hennessy dream - Deutsche Bank

Diageo should stop waiting around for Moet Hennessy and acquire Remy Cointreau instead, Deutsche Bank analysts have said.

Remy Cointreau represents Diageo's best bet of capitalising on China's thirst for premium Cognac, Deutsche Bank said in a note this week.

Its note contrasts with recurring speculation that the Johnnie Walker whisky distiller might wrestle control of Moet Hennessy from LVMH. Diageo owns a 34% stake in Moet Hennessy and has made it clear that it would be interested in acquiring the whole business. However, LVMH's owner, Bernard Arnault, has repeatedly said that he is not keen on a deal.

In Deutsche Bank's view, Diageo would be better offloading the Moet Hennessy stake and seeking a deal with Remy. It could get around GBP3.6bn for the Moet stake and could potentially pick up Remy Cointreau for GBP3.3bn, according to the analyst group's estimates.

"We have been of the view for a long time that it is extremely unlikely that LVMH will choose to sell its majority stake in Moet Hennessy to Diageo despite widespread press speculation for many years," said Deutsche Bank.

"Our view is that Mr Arnault is generally a buyer, not seller of assets and certainly not a seller of very high profile, very profitable ‘trophy’ French assets such as the Champagne and Cognac industries," said the analyst group. It added that Moet Hennessy constitutes around 50% of the Champagne export market and 50% of the global Cognac market.

Deutsche Bank said that it sees more opportunities for synergies with Remy Cointreau, as well as greater access to China's booming Cognac market.

However, by giving up on Moet Hennessy, Diageo would lose the chance to own the world's best-selling Champagne brand, Moet & Chandon. It does not currently have a Champagne brand in its portfolio.

Diageo has been more aggressive with its mergers and acquisitions strategy of late. In February, the group signed a deal to buy Turkey's Mey Içki for US$2.1bn. It has also bid for Stock Spirits and is seeking indirect control of Chinese spirits producer Shui Jing Fang.

At its recent half-year results, Diageo's CEO, Paul Walsh, also hinted that the group would take a look at Beam Global Spirits & Wine, once that business is separated from its parent group, Fortune Brands. Fortune is set to complete a demerger of Beam later this year.