London-based
Diageo Plc.
(
DEO
) 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
), and
Compania Cervecerias Unidas S.A.
(
CCU
) that carry a Zacks Rank #1 (Strong Buy) and
Constellation Brands Inc.
(
STZ
) with a Zacks #2 (Buy). These companies offer a more attractive
exposure to alcoholic beverage segments.
CERV UNIDAS-ADR (CCU): Free Stock Analysis
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DIAGEO PLC-ADR (DEO): Free Stock Analysis
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BOSTON BEER INC (SAM): Free Stock Analysis
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CONSTELLATN BRD (STZ): Free Stock Analysis
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