Is diageo on brink of a premier coup?

THE champagne has been on ice for some time but Diageo could soon be celebrating the addition of top French bubbly brands such as Moet & Chandon and Veuve Clicquot to its giant drinks

cabinet. Its thirst has been well and truly whetted by the stakebuilding of French partner Moet Hennessy Louis Vuitton (LVMH) in its rival luxury brands group Hermes. * WIN A LUXURY LONG

WEEKEND FOR TWO IN CAIRO!!! INCLUDES BA CLUB CLASS FLIGHTS, FIVE STAR ACCOMMODATION AND £1,000 SPENDING MONEY! * Diageo, the £29billion outfit behind Smirnoff, Baileys, Johnnie Walker and

Captain Morgan, has been waiting for the 66 per cent of Moet Hennessy it does not already own to be made available by LVMH boss Bernard Arnault. It is perceived that he prefers the Louis

Vuitton leather goods and fashion side of the business. LVMH’s move last week to acquire a 17 per cent stake in Hermes for €1.45billion (£1.26billion) has fuelled speculation that a full

takeover is on its shopping list. Further spending power would be provided by offloading its 66 per cent of champagne and cognac business Moet Hennessy to Diageo in a £10billion-plus deal.

Although the current joint venture enables Diageo to sell Moet Hennessy products, it is another thing to have full control over how the business is run. There is the opportunity for boosting

sales in China and other increasingly affluent emerging markets, while reinforcing Diageo’s status as the world’s biggest spirits and wine group, challenged by Pernod’s acquisition of

Absolut vodka in 2008. The personal satisfaction from pulling off a major deal must run through the mind of a chief executive. Diageo’s Paul Walsh has had plenty of time to mull over when

would be the right moment to strike and yet has stuck to a conservative acquisition strategy. Analyst Matthew Jordan of Matrix, who forecasts £411million savings in taking control of Moet

Hennessy, said: “We don’t expect it to happen immediately but LVMH’s acquisition of the Hermes stake is the clearest signal yet that this deal will happen at some point. “Hermes is

sufficiently big that we would expect LVMH to sell Moet Hennessy, should it buy a controlling stake in Hermes.” The deal would probably mean a big equity fundraising for Diageo despite its

estimated £1billion free cashflow after paying dividends and debt funding. But there may be other ways to add to its cocktail. Nomura’s Ian Shackleton said: “We would not rule out a

longer-term merger with a beer company.”