Shares in Guinness-maker Diageo (DGE) jumped up 6.8% in morning trading today after Brazilian reports suggested 3G Capital was eyeing a bid of the company.
Late on Friday the Brazilian investment giant was linked with an approach for Diageo, having been previously linked with rival brewer SABMiller earlier in the year.
3G Capital, which already owns a large minority stake in the world’s largest brewer ABInBev, has been on the food and drink acquisition trail of late and in March agreed to merge Heinz with Kraft Foods in a $430bn deal.
The bid interest drove Diageo’s shares up by almost 7% to 1,879p, their highest level since mid-April, though still some way below their 2015 peak of 2,055p in January.
Analysts argued that a 3G Capital takeover of Diageo had a long way to go before the rumour became anything more tangible.
However, a number of analysts noted that the rumoured bid highlighted the potential value of Diageo’s beer business and that the company had been trading at a discount to fair value after a tough 18-months’ trading.
Analysts at Barclays said the current time presented “an opportunistic time for a deal”, noting: “The combinations of extensive destocking, mis-execution in African Beer and a number of issues in its recently acquired businesses like Shui Jing Fang, United Spirits and Mey Icki has left management credibility and investor patience at a low ebb.”
Jefferies analyst Martin Deboo said he was “inclined to caution” as “a pure LBO of Diageo would be comfortably the biggest ever and well beyond anything 3G have previously contemplated.”
He added: “The news may however imply a move for Diageo by ABI, supported by 3G, which feels more plausible. Either way, this feels like a prompt for a re-evaluation, as the market continues to obsess on inventory overhangs.”
The share price of SABMiller, which had previously been linked to a takeover by 3G Capital or ABInBev, was as much as 3% down in early trading to 3,265.5p before recovering to trade slightly above par by lunchtime.