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Susquehanna: Diageo Chatter 'Just A Decoy,' Indicates Anheuser-Busch Near Next M&A Deal


In a report published Monday, Susquehanna analyst Pablo Zuanic maintained a Positive rating on Anheuser Busch Inbev SA (ADR) (NYSE: BUD).

In the report Susquehanna noted, "By industry, we rank the probability of the next AB InBev M&A target as follows: beer, soft drinks, liquor, coffee, food. So liquor is part of the conversation, but we see less opportunity for synergies with a liquor company than with other beer or soft drinks companies (drop sizes, frequency of delivery, supply chain savings), and given the relevance of investing and nurturing brands in liquor, we see the liquor industry further away from the AB InBev M.O."

Diageo plc (NYSE: DEO) would add 3 percent to AB InBev's US volumes, with 326 million liters of liquor for Diageo and 11 billion liters of beer for AB InBev in the US market. Moreover, regional overlap between AB InBev and Diageo is limited. However, AB InBev offering to purchase Diageo cannot be "ruled out…although it would not be our preferred target," analyst Pablo Zuanic said.

Zuanic believes that the speculations related to Diageo have been "generated" more to "encourage" the SABMiller plc (OTCMKTS: SBMRY) shareholders into a deal. "We have seen this before, with Anheuser-Busch shareholders…"scared" with news their likely buyer was going somewhere else. We see the same thing playing out here."

"With the SABMiller free float being over 50%, we think an offer from BUD with a 30-40% premium would be accepted (especially in the context of the Diageo chatter); the chatter surely gives the SAB free float holders more leverage over Altria and BevCo (the two largest holders of SAB shares). So we continue to assign a 75% probability to a BUD/SAB deal by year-end," Zuanic added.

Latest Ratings for BUD

Jul 2020Evercore ISI GroupUpgradesIn-LineOutperform
May 2020CFRAMaintainsHold
May 2020JP MorganUpgradesUnderweightNeutral

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