Back to top

Analyst Blog

London-based Diageo Plc. (DEO - Analyst Report) has completed its joint venture with India’s largest spirits company United Spirits Limited, to own United National Breweries' traditional sorghum beer business in South Africa. Diageo has bought 50% of the business for approximately 25 million pounds sterling ($36.0 million). The remaining half of the company will be held by a company affiliated to Dr. Vijay Mallya, Chairman of United Spirits Limited.

The deal dates back to November 2012, when Diageo and Mallya had signed a Memorandum of Understanding (MoU) for the traditional sorghum beer business of South Africa-based United National Breweries. The 50-50 joint venture will foray into certain emerging markets of Africa and Asia (excluding India).

Along with the signed MoU, Diageo also agreed to acquire a 53.4% stake in United Spirits for 1.285 billion pounds sterling ($2.05 billion), in order to venture into the fast growing alcohol market in India. Besides financial strength, the acquisition is expected to help to reduce debt and provide United Spirits with the opportunities it seeks. For Diageo, United Spirits will not only open up the growing market Indian market, but also assure access to a burgeoning middle class and a rising beer consumption trend.

Entrepreneur Mallya sold the 53.4% stake in United Spirits to Diageo as he requires sufficient cash to bail his Kingfisher Airlines out of bankruptcy.

Diageo, the owner of leading brands like Smirnoff and Johnnie Walker explores opportunities to expand geographically through acquisitions, within its financial criteria. The acquisitions of companies with strong local routes to market and brands like Mey Içki in Turkey and the investment in ShuiJingFang in China and Halico in Vietnam in fiscal 2012 are particularly appealing.

Currently, Diageo Plc. carries a Zacks Rank #3 (Hold). We would also recommend that investors to consider Boston Beer Company Inc. (SAM - Analyst Report), and Compania Cervecerias Unidas S.A. (CCU - Snapshot Report) that carry a Zacks Rank #1 (Strong Buy) and Constellation Brands Inc. (STZ - Analyst Report) with a Zacks #2 (Buy). These companies offer a more attractive exposure to alcoholic beverage segments.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SIGNET JEWE… SIG 116.37 +7.72%
INSITE VISI… INSV 0.30 +7.11%
CHYRONHEGO… CHYR 2.72 +5.84%
US SILICA H… SLCA 70.72 +4.00%
MALLINCKROD… MNK 80.11 +2.32%