Investors in Diageo, the Johnny Walker and Guinness drinks group, could be in for some interesting times as it continues to restructure its business.
It has made a number of moves into developing markets, including a move this week by its EABL subsidiary to buy SABMiller's 20% stake in Kenya Breweries to take full ownership of the business. Diageo, down 6p at £12.85, has also been widely tipped to be considering a deal to buy tequila brand Jose Cuervo for some $2bn.
Now analysts at ING have pointed out another possible development. From Thursday, the company has the option to buy a 50% stake in Ketel One vodka from its partner, the Nolet family of the Netherlands. The two sides agreed a distribution deal in 2008, and Diageo paid $900m (around £600m) for its share of the joint venture. ING said:
An interesting date is approaching. From 9 June 2011, the Nolet family is allowed to offer the remaining 50% stake to Diageo for $900m, plus interest costs. This option period lasts until 9 June 2013.
Diageo is allowed to neglect the offer but in this case it has to pay $100m to the Nolet family, while the family is then allowed to sell the stake to a third party (still with the right of refusal by Diageo).
This major payment might need to be done at a time when Diageo is really actively changing its business structure. It likes to invest more in developing markets, in which we have seen four actions up to now. It acquired a minority stake in a Vietnamese local producer, it intends to buy the majority in a Chinese local spirits producer, it bought the leading spirit player in Turkey and yesterday its 51% subsidiary EABL acquired the remaining 20% stake in Kenya Breweries for $225m.
Diageo is gradually changing into a higher growth machine through a better regional profile, although several acquisitions might still be relatively expensive (Ketel One, Cuervo).
One to watch.
