Blog: Olly WehringDiageo, SABMiller and Scottish & Newcastle? Shurely shome mishtake?

Olly Wehring | 23 April 2007

The Scottish & Newcastle saga has taken yet another twist today (23 April), with UK reports claiming that SABMiller and Diageo have been in recent talks about carving up the brewer.

The Financial Times has claimed today that the ‘Project Spice’ discussions – in which Diageo is known as ‘Dill’, SABMiller goes by the moniker ‘Sage’, and S&N is referred to as ‘Saffron’ – have been held as recently as this month.

Naturally, Diageo and SABMiller would not be drawn on the report when contacted by just-drinks.

But the idea of such discussions going ahead seems really quite unlikely to me. Diageo’s CEO, Paul Walsh has said on countless occasions in the past that the beer markets of Western Europe are not the kinds of playgrounds Diageo wants to play in. The company’s Guinness stout brand has well-documented problems of its own in the UK and Ireland, while France does not look too great for any brewers at the moment.

What's more, Walsh has often spoken of his desire for Diageo to make bolt-on acquisitions in the upper end of the spirits and wine categories, segments that he is right to believe will generate higher margins than stagnant beer markets.

And as importantly, Walsh has set his sights on boosting Diageo's standing in nascent international spirits markets in China and India. It is hard to see why he would want to dilute this by investing in a mature beer market like the UK.

Granted, there may be a temptation for Diageo in Russia and Eastern Europe, where S&N operates its buoyant Baltic Beverages Holding venture with Carlsberg, but the intricacies and complications of sorting that one out would be nightmarish for Diageo - and SABMiller for that matter.

Rumour has it, meanwhile, that, although SABMiller and Diageo may have discussed the idea in the past, it was only in a ‘pie in the sky’-type way.

It’s a non-runner, if you ask me.

You were asking me, right?


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