Diageo Shares Surge on Report of Possible Takeover by Lemann

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Lemann to Take Over Diageo?

Diageo Plc, the maker of Guinness stout and Johnnie Walker whisky, surged in London trading on a report that a billionaire backer of Anheuser-Busch InBev NV is considering a takeover bid.

Jorge Paulo Lemann and other executives are in early stages of mulling an acquisition, according to a column on Friday by Lauro Jardim, an influential writer for Veja, Brazil’s biggest-selling news magazine. A spokeswoman in Brazil for Lemann declined to comment, as did a representative for London-based Diageo.

Diageo shares rose as much as 8.7 percent to 1,914 pence, the steepest intraday gain since November 2008, boosting the company’s market value to about 48 billion pounds ($73 billion). They were up 6.8 percent as of 10:31 a.m.

Veja’s report fueled renewed speculation of takeover activity in an industry where consolidation has been rife. Deals worth about $66 billion have been completed in the last three years, according to data compiled by Bloomberg. Diageo has played its part in that, last year gaining control of India’s United Spirits Ltd. after a $1.9 billion tender offer.

Most analysts remain skeptical that Diageo will be bought.

A leveraged buyout of the distiller “would be a huge stretch,” analysts at Jefferies said in a note Monday. Lemann’s 3G Capital would need to raise about 48 billion pounds, more than double the equity component of the biggest leveraged buyout in history, TXU Corp. in 2007, they said.

Diageo’s current price-to-earnings ratio and the bid premium that would be required also mean it’s unclear how attractive the financial returns would be, Jefferies said. The shares trade on a multiple of about 24 times earnings for the past year.

3G Transactions

3G Capital has used a series of transactions to expand its stable of household names -- often working with Warren Buffett’s Berkshire Hathaway Inc. The private-equity firm orchestrated a deal last year to combine Burger King Worldwide Inc. with Tim Hortons Inc., a coffee-and-doughnut chain. It previously teamed up with Berkshire to acquire H.J. Heinz and is now merging that company with Kraft Foods Group Inc.

The challenges of monitoring the Heinz-Kraft deal mean the chances of a takeover of Diageo in the near-term “seem slim,” analysts at Sanford C. Bernstein said in a note Monday.

Lemann and his partners also have profited from consolidation in the alcoholic beverage industry. They combined Latin American brewers, then engineered an $11 billion merger with Belgium’s Interbrew NV in 2004. In 2008, they led the $52 billion union with Anheuser-Busch Cos. to form AB InBev, the world’s largest beer maker.

Buffett didn’t immediately return a message seeking comment left with an assistant.

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