Beverage Giant Diageo Eyed for Takeover Amid Record Low Profits

A pint of Guinness Beer, one of Diageo’s flagship brands. (Photo: Press Association via AP Images)

Following a year of declining sales and sell-offs, British alcohol giant Diageo is being eyed by investors for a takeover that could radically shake up the owner of massive brands like Guinness, Smirnoff, Casamigos and Johnnie Walker, ESM Magazine reported Thursday.

Over the past week, spectators have mulled the future of the company as it reached a stock price of $128, a four-year low last seen in April 2020. Attributed to rising interest rates and global trade tensions, decreased confidence in Diageo reached a fever pitch earlier this year when it reported a $158 million net sales decline. Russ Mould, investment director of AJ Bell, added fuel to the fire last Wednesday when he identified Diageo as a prime candidate for a takeover bid.

“That bargain valuation, at least relative to Diageo’s history, could make it a takeover target for an opportunistic rival with deep pockets or a private equity firm loaded up with cash to do deals. A prospective bidder might take the view that current problems are fixable and that now is a good time to swoop on a portfolio of well-known brands,” Mould said in a public statement.

A portfolio of well-known brands indeed; in addition to its flagship Guinness stout, Diageo owns varied imprints including Johnnie Walker, Smirnoff, Baileys, Ketel One, Don Julio and Casamigos. The company regularly charts as one of the world’s largest alcohol firms with gross profits reaching $12.3 billion in 2023 and a current market cap of over $70 billion.

So why the long face?

The trials and tribulations of Diageo have largely been attributed to specific markets, with sales slumping 23% in Latin America and the Caribbean last year. Though the company has reported marginal declines in other countries, it should be noted that the industry as a whole is currently suffering from a “what goes up must come down” dynamic.

Premium spirits — one of Diageo’s specialties — witnessed an unexpected boom at the onset of COVID-19 that buoyed high-end brands well into 2021. The category has since cooled off, resulting in similar losses for alcohol firms like Pernod Ricard and Remy Cointreau.

Adjusting its strategy, Diageo has begun letting go of its less profitable ventures. The drinks giant sold off 32 locally-produced brands in India in 2022, followed a year later by the sale of Windsor Global whisky to a South Korean investment firm. Last month, Diageo announced the sale of its subsidiary Guinness Nigeria; on Monday, the sale of Safari Liqueur.

For the time being, acquisition rumors have been substantiated by nothing other than investor speculation. In light of its recent sell-offs, Diageo seems to be focusing primarily on a smaller roster of premium brands that will hopefully turn around in years to come.

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