Diageo shares rally on takeover talks

8th Jun 2015 08:25

Diageo rallied 7% on Monday following media reports of bid interest over the weekend. 3G Capital, which is owned by Brazilian billionaire Jorge Paulo Lemann, is reportedly considering a takeover bid for the company.Citigroup said that although it's difficult to say whether the media reports are credible, Diageo seems the sort of target 3G would consider, noting that it's a strong brand with cost-cutting potential on 3G standards, opportunities to unlock value and two years of operational underperformance."We doubt anything would happen soon, but at the very least, we believe this will increase pressure on Diageo management to consider actions that would restore confidence/unlock value and underpin the valuation," said Citi.However, Shore Capital was sceptical that a bid would materialise.Commenting on the news, Shore Capital said: "While Diageo looks less expensive in the short term than say SABMiller, which, in our view, would be the other likely bid candidate for 3G, we believe the latter's cost synergy potential and stronger top-line growth prospects along with its recent share price decline would offer the greater attraction assuming it is not too busy still working through the Kraft/ Heinz deal."