Another year, another speculated deal for SABMiller.
2010 was the year that the world’s second-largest beer company by volume was expected to buy the beer business of Australian-based Fosters. This year speculation has shifted, for the moment, to the acquisition of Guinness from its spirits-dominated holding company, Diageo.
The steady stream of speculation about mega-mergers in the global beer industry largely reflects the ongoing pace of consolidation that has characterised the sector for more than a decade.
Invariably, given the pace of this activity, some of the speculated deals do materialise into multibillion-dollar transactions.
This time around spokesmen for both Diageo and SABMiller have assumed the traditional official position, which is to refuse to comment.
This is not the first time there has been talk of a tie-up between SABMiller and the Irish brewer of Guinness draught.
According to one local industry source, several years ago there was talk that SABMiller was set to acquire Guinness in a share-based transaction that would see Diageo emerge with a stake in SABMiller.
However, it appears that at the time the two parties could not reach an agreement on the price or on the extent of representation that Diageo would get on the SABMiller board. So no deal was done.
A London-based analyst said yesterday that there had been speculation that Diageo would sell Guinness since as far back as 1997 when Grand Metropolitan launched its controversial bid for the Irish brand.
That the speculation continues is a reflection of the widely held view that Guinness does not belong in Diageo, which is a predominantly spirits group. And in turn, that beer and spirits are different businesses.
“In some cases, such as Smirnoff Ice, the distribution system is more like beer than spirits, but generally spirits and beer should be considered different businesses,” the analyst maintained.
In a recent analysis of the group, Dublin-based magazine The Phoenix noted that although 2 billion pints of Guinness were sold worldwide every year, this 252-year-old company had become little more than the “butt-end” of Diageo.
Beer currently accounts for about 22 percent of Diageo’s turnover and well under 10 percent of group operating profit.
“The Guinness brewery division is something of an anomaly inside Diageo as its chief executive, Paul Walsh, has been positioning Diageo over the last decade to be the dominant premium spirits group in the world, with a 29 percent world market share.”
While it may be the butt-end of the business, one attraction for Diageo is the tax benefits it reaps from Guinness’s domicile in Ireland, where the corporate tax rate is just 12.5 percent.
If Diageo were to sell Guinness the loss of this benefit would have to be reflected in the sale price.
And if Guinness was up for grabs inevitably, SABMiller would not be the only bidder.
Guinness’s major markets are Ireland, the UK and Nigeria, but it also has attractive operations in the Far East and in east Africa, where it recently bought Serengeti Brewery. - Ann Crotty