M&A Deal # 1 — Diageo (DEO)
Diageo (DEO) just announced preliminary Q4 earnings. Guinness, its biggest beer brand, which accounts for 52% of Diageo’s $4 billion in annual beer revenue, saw global sales decline by 1% in the quarter due to softness in Africa and North America. Overall, beer accounts for 21% of Diageo’s $19 billion in annual revenue. While Guinness considered one of Diageo’s strategic brands, it’s clear the beer market isn’t growing.
Putting Guinness and the rest of its beers on the open market would allow it to focus on its spirits business — I might also consider selling the wines but keeping the champagne brands for the luxury market — while simultaneously delivering between $12-$16 billion (based on 3-4x revenue) from any sale. That’s money it could then reinvest in its top brands while also reducing its $16.5 billion of debt.
So, who would be the buyer?
I’ve got two candidates: Anheuser-Busch InBev (BUD) and SABMiller (SAB). Both could easily handle an acquisition of this size, and both would love to have a brand another brand with Guinness’s cachet.