Blog: Diageo, Moet Hennessy deal rumours fizz, again

Chris Mercer | 18 October 2010

Diageo's long-fabled desire to buy Moet Hennessy is back in the rumour mill.

The Guinness brewer last week cheered analysts by reporting a buoyant first quarter of trading, while Moet Hennessy's parent group, LVMH, announced more strong Cognac sales in China and a rebound in Champagne sales.

Diageo is sitting on a mountain of cash - GBP2bn (US$3.09bn) at the end of its most recent fiscal year. It already owns 34% of Moet Hennessy and has a gaping hole in its portfolio for a leading Champagne and Cognac. Asia's thirst for Cognac has highlighted the disparity between Diageo's lack of activity in this area and the strong gains made by rival Pernod Ricard with Martell.

It has always been assumed that the stumbling block to a deal was LVMH chairman Bernard Arnault. There has not been a compelling case made for Arnault seeking a sale.

What potentially makes the rumours different this time around is that they coincide with speculation that LVMH is eyeing a bid for Hermès. LVMH might be tempted to sell Moet Hennessy to raise cash for Hermès, it is thought.

This may have the whiff of investment bankers touting for business, but the logic for a deal makes sense.