Is Diageo's Recent Acquisition a Good Buy?

Diageo has purchased of the tequila brand Casamigos - owned by George Clooney and Cindy Crawford's husband - for $700 million

Philip Gorham 22 June, 2017 | 11:22AM

Once again, Diageo (DGE) is paying a full price for an acquisition target. The company's purchase of the tequila brand Casamigos for $700 million with the potential for an additional $300 million in long-term performance-based consideration, is neutral to Morningstar analysts’ valuation of Diageo at the low end of that range, and modestly dilutive at the high end. We are maintaining our £22.50 fair value estimate because the deal is relatively small for Diageo, less than 3% of North American sales.

The stars must line up perfectly for this deal to create value

We still believe Diageo has a wide economic moat, based on its dominance in several large categories and its broad product portfolio, but bolt-on deals like this highlight an emerging risk for investors in many large-cap consumer product manufacturers--the loss of market share to craft and artisan products.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Diageo PLC2,521.50 GBX0.36

About Author

Philip Gorham  

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies