UK: Mexican deals boost Diageo's position on Cuervo - analyst
Much speculation still surrounds a possible bid for Jose Cuervo by Diageo
Analysts Nomura said that the Modelo deal, as well as Heineken's acquisition of FEMSA Cerveza two years ago, puts Diageo in a stronger bargaining position. "With both Mexican beer families having now sold out, we think this strengthens Diageo’s hand in negotiations on the Jose Cuervo brand," Nomura said in a note today (24 August).
The drinks group could also "replicate the cheap financing that A-B Inbev has for the Modelo deal, as most free cash flow is US-dollar based," it added.
Diageo reported a 21.7% leap in operating profits to GBP3.16bn (US$5bn) yesterday as emerging markets drove growth. These markets now account for 40% of the company's business.
Nomura added that Diageo has "significant headroom" for more M&A opportunities in emerging markets. It noted that Diageo expects to increase its exposure to emerging markets to 50% by 2015, and "successful M&A could boost this further".
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