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Comment - Beam's Bourbons Attractive to Diageo, But Not Enough for a Counter-bid

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Is Diageo really considering leading a counter-bid consortium for Beam?

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Liberum analyst Pablo Zuanic has gone against the grain by suggesting the UK-headquartered group could, or maybe should, be girding its loins for a move. “Conventional wisdom has it that no rival bids will emerge for Beam. We disagree,” Zuanic said in a note, reported in today's Guardian.

“The international premium spirits business is about brands first, and about building scale and distribution muscle for those brands. So if one of the two leading Bourbon companies comes up for sale and one believes in the export potential of Americana, then Diageo and Pernod should bid,” he adds. 

Zuanic rules out Pernod on the basis it would stretch the group financially. However, the note suggests a Diageo-led consortium bid is “quite possible”, with the Smirnoff producer potentially bagging half of Beam - the Bourbons, Teacher's Scotch whisky; and the Tequilas - and a bid partner taking the remainder. 

Will this scenario emerge? It seems unlikely. 

Diageo would no doubt be tempted by Beam's Bourbon's brands - Maker's Mark, Jim Beam and Knob Creek are an attractive crop in anyone's book. But the group is beginning to plough its own furrow in this category, notably through the re-launch of its Bulleit Bourbon in the UK and roll out of new high-end brands in the US

When it comes to Tequila, it's a similar rationale. Beam's high-volume Sauza would be an attraction. But Diageo now seems more interested in quality than quantity when it comes to the Mexican spirit, having just thrown its weight behind a tie-up with Sean 'Diddy' Combs on DeLeón. This adds to its other high-end Tequila brand Don Julio. Neither are a replacement for losing the rights to Jose Cuervo, but Tequila does not offer the same opportunities in many of the world's emerging markets as, say, Scotch. 

The other factor fogging up the counter-bid crystal ball is Beam's price tag - a whopping US$16bn, nearly 20-times EBITDA. As one source told me: “It's a really full price.” And, as Diageo CEO Ivan Menezes stressed at a press briefing I attended in November, the company's mantra remains “financial discipline”. 

Diageo insiders suggest a move for Beam is “not a must-do deal” and any bid would be a “complicated process”. 

If this is the case, it will pave the way for a bright new dawn for Suntory

For just-drinks' full coverage of the Suntory, Beam deal click here

Sectors: Spirits

Companies: Diageo, Pernod Ricard, Suntory, Smirnoff

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