UK: Mexican deals boost Diageo's position on Cuervo - analyst

By | 24 August 2012

Much speculation still surrounds a possible bid for Jose Cuervo by Diageo

Much speculation still surrounds a possible bid for Jose Cuervo by Diageo

Diageo's potential bid to buy the Jose Cuervo brand has been strengthened by Anheuser-Busch InBev's buy-out of Grupo Modelo, an analyst has claimed. 

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". 

Sectors: Beer & cider, Spirits

Companies: Diageo, Modelo, InBev, Heineken, FEMSA

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