Nomura Holdings, the Japanese financial holdings company, has posited that if competition authorities were to permit it, a merger between SABMiller and Diageo would allow the companies to improve their profit margins by up to 18 per cent, thedrinksbusiness.com reports.
The prospective amalgamation has been dubbed ‘SABGEO’.
“We estimate that with around 50/50 emerging and mature market split of profits, a merged group could offer a firmer profit base in uncertain times [for SABMiller shareholders] and potentially increase its growth profile in the longer term [for Diageo shareholders],” Nomura said.
It added that the merger would be much like “the creation of Diageo from the merger of Guinness and Grand Metropolitan in 1998.”
It went on to say, “Although Diageo is now making less of its total beverage alcohol strategy, we believe that a more balanced portfolio of beer and spirits could produce material upside. With broadly similar market capitalisations, we see such a deal adding 18 per cent to combined net profits, assuming £1bn of cost synergies and some benefit on tax, with minimal regulatory issues to subtract value.
"There is potentially further upside from revenue synergies, and scope for a higher rating for a better balanced business. In addition, for the two large shareholders in SABMiller (Altria and Santo Domingo families), we believe a merger would preserve their tax status while giving smaller shareholdings in a more liquid investment.”
© 2015 European Supermarket Magazine – your source for the latest retail news. Article by Peter Donnelly. To subscribe to ESM: The European Supermarket Magazine, click here.
