Pressure is building for corporate activity in Beverages: The press has widely speculated that a bid from ABI for SABMiller is imminent. However, as highlighted by the formation of Diageo, deals can emerge both quickly and from the most unlikely of places. Although its relatively open shareholder register and attractive positioning means SABMiller is the common denominator in many M&A scenarios, after its recent substantial share price under-performance, the strain on Diageo management to do something proactive may also be increasing. An ABI/SABMiller deal may not be the only option if the Dance of the Beverage Industry Elephants begins.
--> We believe a potential merger between
Diageo and SABMiller is a credible alternative to a ABI/SABMiller deal. Diageo has long
highlighted the attractions of a Total Beverage Alcohol (TBA) strategy while integrating
Guinness into SABMiller’s global beer footprint could yield over £400m of cost saving
and additional revenue synergies in our view. Although the benefit of combining spirits
and beer is less evident in some markets, overall value creation could still be attractive.
M&A optionality exists in beer and spirits: We caution investors against taking heavy
underweight stock positions across either the beer or spirits space. We re-iterate our
Neutral Beverage and Tobacco sector view.