World: Diageo could be forced to spin off Guinness

Diageo is braced for a swoop by an activist investor that would force it to sell its Guinness brand after a profits alert sent its shares to their lowest level in a decade, MSN reported on November 9.

The UK-listed drinks giant – whose chief executive Debra Crew abruptly left in July – suffered a sell-off after a bleak trading update last week.

Its latest woes are likely to see activist investors pile in and call for big changes, City sources told The Mail on November 9.

That could mean fresh pressure to break up the group by selling Guinness – which could be worth as much as £14 billion. Or it could see calls to put the whole group – whose other brands include Smirnoff vodka and Johnnie Walker whisky – up for sale.

Diageo's value has slumped to less than £40 billion from £90 billion at its peak in 2021. Analysts have said that makes it vulnerable to a takeover approach.

The company was earlier this year forced to deny a report that it was looking to sell Guinness. It said it had 'no intention' to sell the brand – or to dispose of its 34 per cent stake in champagne and cognac maker Moet Hennessy.

Yet investors continue to press the board over the issue. Chairman John Manzoni reiterated at the company's annual meeting on Friday that it was not for sale.

And interim chief executive Nik Jhangiani told an investor results presentation last week that Diageo was 'still excited by the opportunities to accelerate growth' for Guinness.

Yet the statements carry less weight while Diageo is still searching for a new chief executive.

Guinness is Diageo's star performer, benefiting from popularity among social media influencers and famous faces including the Princess of Wales.

The Irish stout's profile has also been boosted by Netflix's House Of Guinness, a dramatisation of the founding family's history.

Meanwhile, non-alcoholic brand Guinness Zero has been gaining popularity. But the success of the beer business contrasts with the performance of the spirit brands that form most of Diageo's portfolio – which have been hit by waning demand in China and the US.

Recent analysis by Swiss bank UBS suggests Diageo could be worth more broken up, putting a 'sum of its parts' valuation at 2380p a share, 40 per cent higher than its current price.

They estimated Guinness's value at £11 billion to £14 billion, saying: A 'potential spin-off initial public offering (IPO) of Guinness, the fastest growing part of the portfolio' could be among 'levers for management to realise value'.

They pointed to its strong sales growth over the past couple of years including in developed markets 'driven by younger consumers and Zero'. And they noted that the denial in January that Guinness was up for sale came 'when Diageo's share price was 40 per cent higher than today'.

Chris Beckett, consumer staples analyst at wealth manager Quilter Cheviot, said: 'Selling Guinness is not necessarily the no-brainer that many think it could be for Diageo.

'Yes it would simplify the business. And Guinness is going through something of a renaissance at the moment. Striking now while the iron is hot would give Diageo the best opportunity to achieve full value, and potentially get someone to overpay.

'But by selling Guinness, Diageo risks exposing the rest of its business. Spirit sales are declining in the US and not looking much better elsewhere. Without Guinness's value helping to alleviate some of the challenges facing Diageo, the valuation of the overall group could fall significantly.

'Shareholders, therefore, would want one of the big brewing companies, such as AB InBev, to purchase the company rather than have a partial IPO. This would probably be the scenario where the most value is created for shareholders.'