just On Call - Diageo would take a look at Beam Global
Diageo interested in acquisitions - CEO
Analysts have tipped Diageo and Bacardi as frontrunners to acquire key spirits brands in the Beam Global portfolio. Beam's parent group, Fortune Brands, plans to relaunch Beam as a standalone business later this year and the move is expected to attract takeover interest.
When questioned about Fortune's plan at Diageo's half-year results conference today (10 February), Walsh indicated that Diageo would be interested in any opportunities that arise. "We would look at everything," Walsh told journalists, on the question of Diageo's mergers and acquisitions policy.
Beam Global's flagship Jim Beam brand would fill a Bourbon-shaped hole in Diageo's burgeoning portfolio. It is thought, however, that the drinks giant would have to partner with another player in order to move for Beam. Competition issues would prevent Diageo from acquiring Beam's business single-handed and Bacardi has been named as one possible consortium partner.
Diageo is not confining its acquisition interest to North America, however. "Bolt-on deals in the developing world are very important to us," Walsh said today. The group has a deal pending in China, where it is seeking indirect control of white spirits group Shui Jing Fang. Last month, Diageo also signed a deal with Vietnam's largest branded spirits group, Hanoi Liquor Joint Stock Co. There is speculation that the group is also eyeing-up Turkey's Mey Icki, although it has so far refused to comment on this.
Despite Diageo's interest in acquisitions, Walsh said that the group's main priority remains organic growth. The company's share price dropped by 4% on the London stock exchange today after a decline in half-year sales and profits in Europe marred a strong performance in Asia and Africa, as well as improved sales of premium drinks in the US.
The group is planning to cut more costs in its businesses in Spain, Portugal and Greece. But, Walsh remained upbeat on the company's overall performance, which saw global sales increase by 2% and net profits up by 17% for the six months to the end of December.
"Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010," said Walsh.
Asia proved to be particularly strong for the group during the half-year, with Scotch whisky sales, and Johnnie Walker in particular, continuing to see high consumer demand in the region. Net sales at Diageo's Asia Pacific business rose by 18% for the six months, to GBP616m (US$988.3m), with operating profits up by a third, to GBP129m.
However, some analysts were cautious on Diageo's results in Asia Pacific. Sanford Bernstein said that the region's performance was in-line with its estimates, but added: "Disappointingly, organic net sales declined 3% in China, likely much weaker than their global competitors, and in our view only partially explained by the absence of Cognac in the portfolio."
To hear Diageo's president for Asia Pacific, Gilbert Ghostine, speaking to just-drinks today about Asia's potential for the group, click here.
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