Diageo stocks up over SABMiller merger rumours

Diageo’s shares increased by 1.4% on Monday amid speculation the drinks giant could merge with brewing business SABMiller, whose shares also rose by 0.6%.

Diageo saw its shares rise by 1.4% amid speculation the company could merge with SABMiller

As reported in The Financial Times, SAB has grown in recent weeks off the back of heightened speculation brewer AB Inbev has been considering a bid.

The most recent idea was SABMiller might also be pursuing a merger with the global drinks giant, which would give it access to the Guiness beer business.

The joining of Diageo and SABMiller would create a business worth approximately £100 billion, generating free cash flow before dividends of around £5 billion, as forecast by Barclays bank.

Both stocks were one of the largest gainers on the FTSE 100 on Monday.

“Diageo’s business has staled over the last year and pressure on management to address investor concerns around slowing top-line growth rates is building,” Barclays told The Financial Times. “A merger of the world’s number one spirits and number two brewing businesses would create a potent new force in the Total Beverage Alcohol (TBA) category.”

Diageo apparently tried to merge with SABMiller back in 2007.

According to Citigroup, another possibility could be for AB Inbev to buy Diageo’s beer business as an alternate route to Africa. AB Inbev is forecast to make its move in the next six to 18 months, but a bid for SAB is “the best and most likely option”.

A spokesman for Diageo said: “We do not comment on rumour and speculation. As we have always said, we will consider opportunities if they are a good fit for our business, meet our strict investment criteria, and our future growth goals.”

A spokesman for SABMiller also said the company would not comment on market speculation.

Diageo’s recent acquisition of United Spirits Limited enabled the company to achieve an “unassailable” position as the world’s leading spirits producer by volume, analysts confirmed.