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Nice to see the merger-mongers are not far behind those declaring an end to the credit crisis and a cautious return to normality.

Wednesday saw speculation - and persistent speculation at that, if you accept that the share prices concerned were moving against the trend - of an $80bn merger in the drinks sector.

Here’s what’s behind it - a pithy two pars mailed out by the respected US drinks industry gossip sheet Beer Business Daily:

That’s a question I’ve been getting repeatedly from distributors around the country these last two weeks. What’s shaking? Several distributors noting that DGUSA planning meetings have been postponed, incentive trips cancelled, training postponed indefinitely, and the word on the street is that Diageo has called a meeting/conference call in April.

All this has gotten distributors’ tongues wagging about a possible announcement, and the emails are flying about what that announcement could be. The conjecture grew to a fever pitch yesterday, with our phone and email in-box heating up about it. A deal with A-B is the fave/not-fave rumor, depending on who you are, particularly since A-B supported Diageo on their St. Pat’s initiative. While tantalizing to think about, I’m not sure I buy it - totally out of character. Perhaps it’s as simple as announcing their plans for their fiscal year (which starts in June). This could all just be a coincidence and much ado about nothing. No official word from Diageo — a spokesman declined to be drawn out on it.

This, in turn, has gotten Philip Morrisey and Liz Hartley, the drinks team at Citigroup in London, fired up. While stopping short of encouraging a merger between Diageo and Anheuser-Busch, a “company flash” distributed to clients on Wednesday declared:

A Guinness licence in North America is plausible — Historically, there have been discussions about BUD distributing Diageo’s beer and RTD brands in the US, the stumbling block being Diageo’s reluctance to cede control and EBIT, distribution of these brands being in an entirely separate organisation from its US wine and spirits brands. A tie-up now could prove timely since although the Guinness brand continues to grow net sales, momentum is slowing (FY06 9%, FY07 7% and 1H08 5%) while RTD sales are now declining (1H08 -9%).

“Total Beverage Alcohol” alliance seems unlikely with BUD — Although Diageo remains an advocate of a “total beverage alcohol” alliance, we do not view Anheuser-Busch as the likely partner, given that (1) Anheuser-Busch is US centric and a competitor to Diageo’s spirits business; (2) there would be limited synergies to be gained, since the US spirits and beer distribution networks are separate and converging only slowly; and (3) Anheuser’s limited international presence would also yield limited cost and revenue synergies.

Potentially a positive, but limited, move for Diageo — While investors would likely welcome such a move, especially if US spirits trends deteriorate over coming months, the financial implications for Diageo would be limited. From an Anheuser perspective a deal could be a natural extension of the sales and marketing agreements with InBev while not impeding a potential large-scale alliance between these two.

All of which has gotten FT Alphaville to (again) dig up details of Project Spice, the abortive plan by Diageo and SABMiller to carve up Scottish & Newcastle.

S&N, of course, is now being divided between Carlsberg and Heineken. But in the course of probing the earlier putative bid, hazy details of a separate heavily code-named M&A project involving Diageo and SABMiller came to light: PROJECT ATLAS.

An extract from a Markets Live conversation last April:

HT: But look judging by those last2 calls you were both on you’ve some detail we haven’t yet published

PM: Hmm

NH: we do

PM: Is the name you’ve got the same as mine?

NH: ATLAS

PM: Snap!

NH: PROJECT ATLAS

PM: Should quickly say that this is something that has also been put on ice — so please don’t act on this info without doing plenty of research.

HT: OK but do share

HT: What does the mysterious Project Atlas refer to?

NH: well, we are not 100% sure

NH: what we do know is that it was an earlier set of discussions direcetly between SAB and Diageo that were broken off for some reason a little while back

PM: Yes, top level talks that until recently the parties were trying to re-start.

PM: Are you going to say the BIG THING that this could be?

NH: well, its just a guess

PM: You are not going to tell me that you think Diageo and SAB Miller discussed a merger.

HT: One’s a £28bn business - other is £17/18bn. Surely SAB would not jumpt at that

NH: no, i think it was something to do with beer rather than Diageo’s much larger spirits business

PM: Hmm — Diageo divesting all of its beer operations and merging them with SAB — interesting idea.

NH: yes, could be that - or it could have been something more complex

PM: Maybe a set of joint ventures around the world — covering various portfolios of brands between SAB and Diageo.

HT: What? Some sort of structure that allows both companies to take out costs - but remain short of a full marriage?

PM: yes, maybe.

HT: sounds overly complex

NH: but the plan exists, or at least existed.

PM: Project Atlas — a set of secret talks between Diageo and SAB that did NOT involve Scottish & Newcastle.

HT: Right I think you should move on

Neil Hume & Paul Murphy