Diageo stock climbs amid takeover rumors

By Erin Smith

Published: 08 June, 2015

Diageo's (Bloomberg: DGE:LN) stock has been climbing in early morning trading up nearly 7% following news of a potential takeover of the drinks' giant.

The previous close on Friday was at £1,760.50 and the stock opened this morning at £1,909.50.

The potential buyer is said to be Brazilian billionaire Jorge Paulo Lemann and his private equity firm 3G Capital according to a report in a Brazilian publication Veja.

The private equity firm has partnered with Warren Buffett's Berkshire Hathaway Inc. on several recent deals it has closed including a deal last year to combine Burger King Worldwide Inc with Tim Hortons Inc and the H.J. Heinz and Kraft Foods Group Inc merger.

At the beginning of May it was reported that Diageo was said to be considering the sale of its wine division, although Diageo did not comment. Wine sales only make up rougly 4% of Diageo's net sales.

In the company's third quarter results ending on 31 March 2015, Diageo saw net sales fall 0.7% and volumes were also down 0.8%.

Net sales in the nine months grew 4.6% on a reported basis, but this was boosted by the acquisition of United Spirits, which contributed around £700m and offset the impact of adverse currency movements.

Diageo's acquisition of Indian United Spirits has been plagued with problems for the company over the last 18 months. Most recently Diageo was in a dispute with chairman Dr Vijay Mallya of United Spirits following an internal inquiry and was asked to step down.

Sales across Europe fell 1.3% in the last quarter, following a flat performance in the first half of the year. The UK saw sales decline, but the company said this was due to unfavourable comparisons, with an anticipated duty increase last year brought sales forward into the third quarter.

Neither company has confirmed the takeover according to several finaicual reporting sites.

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