Diageo and MH Face More Speculation

FILED NOVEMBER 1, 2009

Dear Client:

Rumors are again swirling on The Street that Diageo is on the verge of acquiring its remaining 66% stake in Moet Hennessy, according to the Daily Mail. Shares of Diageo rose 13p higher to 1033p yesterday as a result. It’s believed that LVMH could make £6billion-plus from selling MH to Diageo, which it could then use to purchase luxury fashion label Hermes. Acquiring MH would give Diageo champagne and cognac brands, namely Hennessy and Moet & Chandon. It would also allow Diageo to consolidate MH’s cash flow rather than just taking a dividend for its 34% stake, and bring MH brands within its wider geographical distribution system.

The deal makes sense, yes. But analysts have speculated on this supposed acquisition for almost a year now, so take it with a grain of salt. Although we’re sure Diageo would like to own MH’s brands full-out, the question is if LVMH is willing to sell and if the price is right.

MORE ON TTB / FDA INVOLVEMENT IN CAFFEINATED ALCOHOL

Recall we initially thought it was strange that the FDA is leading the investigation into caffeinated alcohol manufacturers instead of the TTB, but it turns out that the TTB asked the FDA to lead the charge. Last Friday the FDA sent a letter demanding 30 different companies prove their product is safe within 30 days or risk having them yanked off shelves. It appears there’s a conflict between the TTB and FDA since the TTB approved these products in the first place. However we learned the attorneys general and NABCA contacted the TTB first, expressing concern about caffeinated alcohol.

In an October 7 letter from TTB administrator John Manfreda to NABCA chief Jim Sgueo (the control state association), in response to NABCA's concerns about these beverages, the TTB reveals the sequence of events. In March of 2008, the TTB asked the FDA for a "health hazard assessment regarding what concentrations are acceptable when caffeine and alcohol are combined in a beverage." Apparently the FDA hadn't gotten back to them yet when, in August, the TTB and the FDA met at the request of the attorneys general from Connecticut, Maryland, Utah, Tennessee, and San Francisco. The meeting was to "discuss the safety issues involving the combination of alcohol and added caffeine." They decided that the FDA should ask the AGs to "submit a case explaining their position on the safety of caffeine added to alcohol and to include pertinent scientific studies and expert testimony to support their position." The AGs got back to the FDA with such a submission in September 2009.

It appears the TTB was already looking to get a determination from the FDA on the safety of caffeine and alcohol before the AGs made contact. The TTB writes that "if the FDA issues new guidance on the use of caffeine in alcohol beverage products, TTB will take all appropriate corresponding corrective action in the form of label rejection, certificate of label approval revocation, and/or voluntary product recalls." And there you have it.

WHOLE FOODS WILL AVOID LARGE ACQUISITIONS IN THE FUTURE

Whole Food’s ceo John Mackey said he’ll stick to “mom-and-pop-type chains” for now on when it comes to future acquisitions, according to Bloomberg. This probably doesn’t come as a surprise if you followed the Wild Oats debacle. Recall Whole Foods faced anti-trust scrutiny from the Federal Trade Commission after acquiring Wild Oats in 2007. The FTC unsuccessfully sought a court order to block the merger in 2007, but a federal appeals court ruled in favor of the FTC earlier this year. Whole Foods agreed to sell 32 stores to settle the dispute.

“I don’t want to make any acquisition that requires the government to approve it ever again,” said John. “Mom-and-pop-type chains will be the type of acquisitions we do in the future. I don’t anticipate any large acquisitions.” He said they have no immediate plans for an acquisition unless a good opportunity avails itself. Right now they’re focused on paying down debt.

WSD BRIEFS:

THE OTHER GUYS NAMES NEW PRESIDENT. August “Aug” Sebastiani, a fourth‐generation member of the Sebastiani family, was named president of TOG. Currently a division of Don Sebastiani & Sons, TOG will become a separate, independently operated wine company effective January 1, 2010. A long‐time family friend and business associate, Richard Zeller, has been named chief operating officer.

NEW YORK TAKES A TOUGH STAND AGAINST DRUNK DRIVING. The New York State Assembly is taking a stand against drunk driving under a new bill passed Tuesday (Nov 17). If passed into law, it would make it a felony to drive while intoxicated with a child in the car and would require first-time convicted drunk drivers to install an interlock device. The bill must pass the Senate before reaching the Governor’s desk. Arizona is the only other state that has made it a felony to drive with a child in the car while under the influence.

CAWG PRESIDENT ACCEPTS NEW JOB AT DEPT OF AGRICULTURE. Karen Ross, president of the California Association of Winegrape Growers for the last thirteen years, has accepted a position with the U.S. Department of Agriculture in Washington, D.C. Ross’ last day with CAWG is November 30.

BACARDI GLOBAL TRAVEL RETAIL HAS NAMED TRENT RUSSELL its global marketing director. Trent has worked as Bacardi’s China marketing director for three years, where he developed the business and the Dewar’s brand in the country.

ILEGAL MEZCAL NOW AVAILABLE IN NEW YORK: Ilegal will be available in select on and off premise locations starting this week. It will be distributed by MHW. Ilegal will enter the market with its joven, reposado and anejo mezcals.


Until tomorrow, Megan

Always laugh when you can. It is cheap medicine.
Lord Byron

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YTD sell days Over/Under: -1

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