Diageo is in the race to acquire Stock Spirits

Diageo is in the race to acquire Stock Spirits

Diageo will not break the bank to acquire Stock Spirits, but the group's strong position in Central and Eastern Europe could be a neat antidote to the Smirnoff maker's travails further south.

Diageo is in the running to acquire Stock Spirits from Oaktree Capital Management. just-drinks learnt today (14 March). However, the drinks giant is up against several private equity outfits and a bidding war could send the price beyond the company's fiscal red lines.

The rationale for Diageo's move on Stock is similar to that for the its recent deal to acquire Turkey's leading spirits producer, Mey Içki, for US$2.1bn. Diageo, spurred on by declines in some of its key European markets, notably Spain and Greece, is keen to expand more quickly in emerging markets.

"Bolt-on deals in the developing world are very important to us," Diageo's CEO, Paul Walsh, told journalists at the company's half-year results conference.

The Sunday Times reported that Diageo has bid GBP500m (US$804m) for Stock, which is the leading spirits player by volume in Poland and Czech and the number one vodka seller in Italy. Its Czysta de Luxe brand sold around 6.4m nine-litre cases in 2010, driving the group to double-digit rises in sales and profits for the year.

Just as with Mey Içki, though, it is the potential distribution platform, rather than Stock's brands, that is fuelling Diageo's desire.

The difference between Mey Içki and Stock lies in valuation. Diageo pushed the boundaries of its oft-touted fiscal discipline in a vigorous pursuit of Mey Içki, which could unlock Turkey's promising drinks market after six long years of tax-related stand-off with the authorities.

By comparision, while the opportunity to bag Stock is real, there is much less sense of do-or-die from Diageo. Oaktree's asking price - thought to be in the region of US$1bn - may prove prohibitive.