Tuesday tips round-up: SAB Miller, Diageo

9th Jun 2015 16:09

Reports that three Brazilian millionaires might be interested in making a bid for Diageo via their 3G investment vehicle may just be an attempt to force the hand of SAB Miller. Indeed, 3G holds a stake in AB InBev, over which 3G has influence. Then again, the report, although the sourcing was tenuous, may be correct.In 2013, the Brazilians purchased Heinz and over the following two years promptly increased its EBITDA margins by eight percentage points. A similar feat at Diageo would take its margins to over 45% - and entail a buy-out premium for shareholders of approximately 25% in comparison to its market value. Intriguingly, such a transaction might be followed up by some combination with AB InBev, perhaps involving the sale of its beer assets to the latter, says the Financial Times's Lex column.The rumours started by a little-known Brazilian blog that 3G might be "limbering up to practise its cheese paring expertise in Diageo, are ill-founded. The kind of leverage the South Americans would need to take out the £50bn-market cap company would make it the biggest such deal ever. In fact, history transactions carried out by 3G - such as the purchase of Heinz and Kraft - show they tend to shy away from putting its own money to work. Furthermore, the possibility of a tie-up between 3G and AB Inbev looks improbable; among other reasons because it would require AB Inbev slasghing its dividend payout. As well, there is no obvious logic to combining spirits and beer, in which AB Inbex is concentrated. "Avoid, unless you are convinced a bid is coming," writes The Times's Tempus.