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Analysts See Hurdles To Rumored 3G Play For Diageo

June 8, 2015

Following reports Friday that Brazilian dealmakers 3G Capital are in the early stages of evaluating an acquisition bid for Diageo, analysts remain skeptical. Research firms Jefferies and Bernstein both issued notes detailing the hurdles to such a deal, with Jefferies expecting 3G to require funds of about £48 billion ($73b) to corral the world’s biggest spirits company, and questioning whether the investment group could generate returns adequate to justify the purchase.

Diageo posted net sales down 9% to £10.3 billion ($15.8b) in its last fiscal year, ended June 2014, and operating profit before exceptional items of £2.7 billion ($4.1b), down 10%. Bernstein added that 3G is currently in the process of merging two recent acquisitions made in tandem with Warren Buffett’s Berkshire Hathaway—food giants Heinz and Kraft—which would seem its biggest near-term priority.

Rumors of a potential 3G play for Diageo circulated late Friday following a report in Brazilian publication Veja. 3G is led by Brazilian moguls Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Herrmann Telles, all controlling shareholders and board members of AB InBev, the world’s largest brewer. The takeover chatter sent Diageo’s shares surging to their biggest intraday gains of the year on both the New York and London exchanges.

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