Evercore Analyst Pours Cold Water On Diageo-Anheuser Busch Rumor
The rumor regarding London-based Diageo gained currency Friday in an unsourced story on Veja, an influential Brazilian media outlet.
The report, which said Brazilian billionaire Jorge Paulo Lemann was interested in a deal, got carried by both Reuters and Bloomberg, and initially sent Diageo shares up more than 8 percent.
Diago traded recently at $115.21, down $2.79.
Anheuser, in which Lemann's 3G Capital holds a substantial stake, gained 2 percent on Friday and traded recently at $120.84, down $3.67.
Molson Coors Brewing Company (NYSE: TAP) lost about 3 percent on Friday and traded recently at $73.02, up $0.38.
Analyst Robert Ottenstein of Evercore ISI said a bid for all of Diageo in the near term is "highly unlikely."
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Moreover, The Wall Street Journal on Monday reported that Diago hasn't made a required disclosure regarding talks.
Under UK takeover rules, if buyout talks result in a "material or abrupt movement" in share price, a market disclosure is required.
"It suggests no formal approach has yet been made," WSJ said.
Ottenstein said it's "plausible" that Anheuser might discuss the purchase of Diageo's Guinness unit.
"However, we do not think Diageo is a seller," Ottenstein said.
Beer equals about 20 percent of Diageo's total sales but accounts for up to 70 percent of its Africa earnings, according to the analyst.
"The sale of Guinness is not something Diageo has to do" according to Ottenstein, who said potential benefits of a sale don't outweigh "the risk of potentially messing up Africa."
Also, unless Diageo is considering a major acquisition, "it doesn't need cash," Ottenstein added.
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