Yesterday I offered an analysis and prospectus of adult beverage conglomerate Brown-Forman (BF-B), one of the largest alcohol distributors in the world; it is also one of our meticulously selected growth stocks. Today I will focus on its bitter rival, Diageo (DEO). Just as Coca Cola (KO) competes with PepsiCo (PEP), and McDonald's (MCD) battles Burger King, Diageo is conducting all out war with Brown-Forman.
For reference, Diageo was founded in 1997 and specializes in alcoholic beverage distribution. However, prior to specializing in booze, Diageo also owned Pillsbury and Burger King, which have since been acquired by other entities. Diageo engages in the creation of all types of liqueurs and generates billions in annual revenues; the company also owns what is arguably the most lucrative drink portfolio in the world.
As was true with Brown-Forman, many of you probably don't recognize the Diageo brand, but I'll bet all of you have consumed at least one of the company's select products. While Diageo owns a seemingly endless beverage portfolio, its most popular spirits include Johnnie Walker, Crown Royal, Smirnoff, Ciroc, Ketel One, Don Julio, Captain Morgan, and even Guiness. As such, Diageo's market cap hovers around $75 billion. And while its popular brand names are impressive, it's $2.55 annual dividend is even more attractive.
Nevertheless, potential investors should conduct their own due diligence. In researching Diageo, one will notice discussions of a potential company takeover, which may prove extremely lucrative. Recent rumors claim that Jorge Paulo Lemman, the world's 26th richest man (at $25 billion), and 3G private capital may acquire Diageo. This speculation may be the result of Larry Schwartz, President of Diageo's North America sales, recently announcing his retirement. Schwartz is an integral part of Diageo; his announcement alone caused the stock to fall $10. Hence, further managerial changes could adversely impact Diageo's short-term share price, but this could be mitigated by the upside of a $140-$160 takeover bid.
Overall, Diageo is an intriguing investment opportunity for young adults. Like Brown-Forman, Diageo's diversified beverage portfolio affords the company an artificial monopoly. Although Diageo and Brown-Forman are bitter rivals, they nonetheless have astonishing pricing power within the adult beverage market. Moreover, Diageo's 25%-40% acquisition premium is hugely attractive.