Given the speculative frenzy around a supposed bid for Diageo from “Brazilian buyout specialist” 3G Capital (despite the source of the frenzy being a one paragraph news-in-brief), it’s perhaps worth casting an eye over 3G’s special treatment of previous acquisitions — such as Heinz.
And where better to start than Note 15 to the HJ Heinz Corporation II and Subsidiaries Q1 condensed consolidated financial statements, covering treatment of one of Heinz’s more important South American subsidiaries…
Venezuela – Foreign Currency and Inflation
The Company has a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the ketchup, condiments and sauces and infant feeding categories. The Company applies highly inflationary accounting to its business in Venezuela…
And if you don’t believe United Bank of India about the first bit, just browse through F1-owning drink mogul Vijay Mallya’s Twitter feed. Then remember he’s the pioneer of the in-no-way tasteless Kingfisher calendar.
(Do make your own here, if you must.)
Of course, being declared a wilful defaulter due to a failure to pay back loans associated with the grounded Kingfisher Airlines might crimp Mr Mallya’s style somewhat.
Usually, when a chief executive of note retires after an extended tenure, the valedictories talk about corporate growth. Think, for example, of Mick the Miner turning a $500m coal asset called Xstrata into a global miner worth $50bn or more. Or Chris Gent producing similar magic in the field of mobile telecoms at Vodafone.
What’s rarely mentioned is the amount of stock issued in the process; rather than executive graft, the growth in size typically reflects equity financing of acquisitions. Xstrata investors never saw a 100-fold increase in their investment; at Vodafone, investors are still nursing burnt fingers from backing Gent’s extraordinary land grab. Read more
Diageo, the world’s largest spirits company, has agreed to pay $16m to resolve US allegations that it bribed government officials in India, Thailand and South Korea to boost sales and receive favourable tax treatment. The FT reports the SEC said Diageo had paid more than $2.7m to win sales and tax benefits relating to its Johnnie Walker and Windsor scotch whiskies. The UK-based company reached the civil foreign bribery settlement with the US Securities and Exchange Commission without admitting or denying wrongdoing.
The UK drinks group is to spend as much as £815m to acquire control of China’s Shuijingfang, the FT reports, marking the first time a foreign company has gained control of an important Chinese brand. The famous brand of baijiu, a fiery spirit, bills itself as China’s oldest maker and boasts distilling techniques dating back to the 14th century. The complex deal will give Diageo a foothold in China’s £25bn baijiu market by buying a majority stake in Sichuan Chengdu Quanxing Group, which is the largest shareholder in Shanghai-listed Sichuan Shuijingfang, the baijiu producer.
Diageo, the world’s largest spirits company, is close to a settlement with the US Securities and Exchange Commission to end a long-running bribery investigation. People familiar with the matter told the FT that Diageo, the UK-based owner of the Smirnoff vodka brand and Guinness beer, was at an advanced stage of settlement talks with the SEC and has agreed to pay between $10m and $20m, and an announcement could be made within weeks. The firm has been under scrutiny for several years as the agency investigated whether Diageo employees or contractors paid bribes to government officials in South Korea, India and Thailand.
Diageo said on Monday it has agreed to buy Turkish spirits company Mey Icki Sanayi Ve Ticaret for £1.3bn ($2.1bn)the Wall Street Journal reports, in a deal that would give the global drinks giant access to a vast distribution network in the fast-growing nation. The purchase, from investment firms TPG Capital and Actera, will be funded through existing cash resources and debt. It will be earnings per share accretive by approximately 1 per cent in the first year and profit positive in year five using a 13 per cent weighted average cost of capital, the WSJ notes. RTT adds that TPG had been considering an initial public offer for Mey Içki, according to reports..
Diageo is close to buying Turkish spirits company Mey Içki Sanayi ve Ticaret for $2bn to $2.5bn, in a deal that would give the UK alcohol giant access to a vast distribution network in the fast-growing nation, reports the WSJ. Barring a last-minute setback, the deal is to be announced on Monday, said people close to the matter. Mey’s owner, US buy-out firm TPG Capital, earlier considered floating the business. UK-based Diageo and other foreign liquor companies have been in a six-year customs dispute in Turkey, which caused Diageo to halt shipments to the country for the past six months. But the row appears to be nearing a resolution, recently approved by the Turkish parliament, which helped convince Diageo to proceed with the deal.
Time for some fantasy M&A.
How might Diageo go about constructing a bid for the alcoholic drinks business of Fortune Brands? It’s up for grabs after the US conglomerate announced plans to split in three. Read more
Fortune Brands is to split itself in three, paving the way for a potential sale of the US conglomerate’s liquor business which includes Jim Beam bourbon and Courvoisier cognac, reports the FT. Bankers say that spirits groups Diageo of the UK, France’s Pernod Ricard and Bacardi of the US will look closely at the Beam Global Spirits & Wine unit, which has annual revenues of $2.5bn. Fortune has been under pressure since October, when activist investor Bill Ackman revealed that his fund, Pershing Square Capital, had built an 11% stake. Fortune’s decision to spin off its $3bn security business and its $1.2bn golf business pre-empts a battle with Ackman, who had to nominate candidates to the board by late December in order to challenge the company’s management. Ackman’s timing is excellent, says Lex, but anticipation of change may now be fully reflected in the share price.
SABMiller, the UK-listed drinks group, is working with other FTSE100 companies on a system to improve the interpretation of analysts’ “consensus estimates” for financial performance. Tesco, SAB rival Diageo, and Anglo American have all signed up for the new Vuma Consensus system, which SAB developed in-house and will use for its interim results in November. Under the system, analysts update their published forecasts to a template provided to Vuma, a third-party platform. In return, they will be able to see their peers’ estimates for the same metrics.
Here’s an interesting way to make a good a pension fund deficit – fill it with 2.5 million barrels of maturing Scotch whisky.
This novel idea has been dreamt up by Diageo and forms a key part of a 10-year funding plan for the drinks group’s UK Pension Scheme (which at the time of the last the triennial actuarial had a deficit of £862 million). Read more
Breaking pre-market news on Thursday,
- Australian government and miners strike deal over super-tax — report. Read more
Breaking pre-market news on Tuesday,
- Aviva Q1 life and pensions sales up 15 per cent – statement. Read more
Breaking pre-market news on Thursday,
- BNP Paribas reveals €5bn Greece sovereign exposure – statement. Read more
Diageo has launched an offer worth up to £610m to increase its stake in Chinese spirits maker Shui Jing Fang, reports the Daily Telegraph. The drinks giant already owns a 39.7% stake in Shui Jing Fang through a holding company called Quanxing, in which it agreed on Monday to increase its stake by 4% to 53%, for £14m. Under China’s takeover rules, Diageo would then have to buy out other Shui Jing Fang shareholders. The price of £610m to buy out the rest of Shui Jing Fang is based on all of the shareholders taking up an offer of Rmb21.45 (209p) a share.
M&A is back (exclamation point!), thanks to the Kradbury affair, and with it lists of possible acquisition targets to buy.
RBS have made their own contribution to M&A speculation on Wednesday morning with a compendium of six potential acquirers to short. That’s in terms of credit — not equity. Here’s what they say: Read more
China’s sovereign wealth fund has acquired 1.1 per cent of the Diageo drinks group, giving it a stake worth £221m in a sign of its emerging strategy to spread its investments over different global markets and asset classes. The move by China Investment Corp, which manages $200bn of the country’s $2,132bn in foreign exchange reserves, makes the fund the UK-based groups’ ninth-largest investor, the FT reported.
Breaking pre-market news on Thursday,
- Barclays sees Q1 pretax profit at £1.3bn; £2.3bn writedowns – statement. Read more
This CDS report was written by Markit’s Gavan Nolan
European credit indices outperformed their equity counterparts today, continuing the trend from yesterday. The Markit iTraxx Europe index tightened 152bp, over 3bp tighter than yesterday’s close, while the Crossover was 25bp tighter at 841.5bp. Tightening credits outnumbered names that widened by about four to one, helped by a strong primary market.
Credit Suisse was among the best performers after it announced strong first-quarter earnings. The Swiss bank said it earned SFr2 billion, more than double the consensus forecast and a vast improvement from the preceding quarters. Like its US peers Goldman Sachs and Morgan Stanley, Credit Suisse gained from robust profits in fixed-income trading. Credit investors were also encouraged by its strong capital position and a reduction in the size of its illiquid CMBS portfolio. Read more
LVMH has indicated it may be willing to sell some or all of its two-thirds stake in Moët Hennessy, its wine and spirits business, to partner Diageo. LVMH, part of the French luxury empire controlled by Bernard Arnault, approached Diageo this year to gauge its potential interest in buying the rest of Moët Hennessy. The companies held informal discussions, but LVMH has not yet decided whether to part with the asset.
Weaker performances in equity markets weighed on European credit Thursday morning, traders said. Trading activity was muted, with many investors wary ahead of the release of retail sales data in the US this afternoon, they noted.
It is probably premature to speculate on who might spoil InBev’s beer party, moving to agree a friendly merger with Anheuser Busch in preference to the cost-cutting, zero-base budgeting team from Belgium and Brazil.
But why should that stop us? Read more
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. Read more
This is RAW market info, but it comes from sources with demonstrable form: SAB Miller is plotting an alternative takeover offer for Scottish & Newcastle that will value the British brewer at around 850p a share or £8bn.
S&N, of course, has already agreed terms with Carlsberg and Heineken, who together have offered cash terms worth £7.8bn. Read more
Franz Humer, chief executive of Swiss drugmaker Roche, is to be the next chairman of UK drinks group Diageo. Mr Humer, a non-executive director on Diageo’s board for the past two years, will replace Lord Blyth as part-time chairman of Diageo in July 2008 after giving up his current joint role at Roche as chairman and chief executive. He will remain executive chairman of the Swiss group. Roche’s new chief executive, to be ratified in March, will be Severin Schwan, an Austrian, who has worked at Roche since 1993. Lombard has some doubts about the part-time nature of Mr Humer’s role and says shareholders should ensure they are getting value for money from their time-share.
Scottish & Newcastle is once again talk of the town after an FT report on Monday that the brewer has been sized up as a potential acquisition target by SABMiller and Diageo, two of the drinks industry’s biggest heavyweights. Industry observers yesterday tried to play down speculation that SABMiller and Diageo had held recent discussions over a possible bid, codenamed Project Spice, although analysts said the rationale for a joint move for S&N is sound. S&N shares rose 2.8 per cent to 587.5p in London trading.
In considering Diageo’s proposal to carve up Scottish & Newcastle between them, SABMiller gave considerable thought to who else might step in to partner the UK drinks giant if it declined – and to which companies might be prompted to launch a counter-bid once S&N were in play.
A financier with direct knowledge of the proposal, code-named Project Spice, told FT Alphaville that SAB was concerned that a rival, such as Anheuser Busch, Carlsberg or Heineken, could step in, keen to gain control of the high-growth businesses on offer in India and China, as well as the 50 per cent stake in Russian brewer BBH. Read more
Diageo has been considering a plan to hive off its entire British drinks business — spirits brands such as Johnnie Walker and Smirnoff as well as its Guinness stout operation — into a separate joint venture company that would also hold Scottish & Newcastle’s British beer business, FT Alphaville has learnt.
A financier with a close knowledge of Project Spice, the putative plan for SAB Miller to bid £9bn for S&N before selling its UK interests to Diageo and disposing of its French business to private equity, says that as part of the process SABMiller was offered the option of folding its own (limited) UK assets into the joint venture. Read more
In the words of Malcolm Wyman it was just “old rumours bubbling up and resurfacing again.”
Since a trading update 10 days ago, SABMiller’s chief financial officer made his comment on the future of his smaller rival, Scottish & Newcastle, the frenetic takeover speculation that had recently gripped S&N has come to epitomise an atmosphere of the froth and recklessness supposedly afflicting the London stock market. Read more