Broker snap: Merger mania to spread to brewers

8th Sep 2009 11:59

The Kraft bid for confectionery company Cadbury has prompted a bout of bid speculation in the market with Nomura suggesting that another British company with a long and storied history, Guinness owner Diageo, could get in on the act.While Kraft has extolled the virtues of economies of scale for the snack food and confectionery business in its pursuit of Cadbury, Japanese broker Nomura thinks many of the same arguments apply to the global brewing market.'We would expect beer consolidation to continue as medium-size groups around the world look to widen their footprint (e.g. Kirin, Asahi) and as some of the larger operators seek to improve their country weightings (e.g. Heineken, SABMiller),' Nomura said in a research note on the sector.'For Diageo with its relative low leverage, there are still buying opportunities in spirits, such as Moet-Hennessy, possibly the Jim Beam brand out of Fortune Brands or the Jose Cuervo tequila brand, but only if the seller's idea of valuation comes down,' Nomura suggests.'Without that, we see Diageo continuing to pursue its TBA (Total Beverage Alcohol) objective in the medium term and seeking a large alliance with a beer company such as Heineken or SABMiller,' the broker added.Nomura also speculates that SABMiller could be smarting from losing its position as biggest brewer in the world to a distant second behind Anheuser-Busch InBev.'Given the history of acquisitions here [at SABMiller], we believe the market could warm to an emerging market deal (such as Femsa or Anadolu Efes if family shareholders were to agree) but could be sceptical about a mature market deal such as Fosters or Molson-Coors,' Nomura said.