Diageo, the world’s largest spirits maker, has launched a US$1.9 billion bid to nearly double its stake to 54.8% in India’s largest spirit company, United Spirits. If fully subscribed, Diageo’s offer would represent a multiple of 38 times United Spirits’ earnings before interest, taxes, depreciation, and amortization (EBITDA). Recently Japan’s Suntory paid over 20 times EBITDA for Beam Inc. which was close to the record of 20.8 times that Pernod Ricard paid for Absolut Vodka in 2008. Spirit makers are increasingly looking to emerging markets to offset sluggish sales in the EU and in North America. Rapid urbanization, a young population, and a fast growing middle class are all driving changes in India’s consumption habits that point toward long-term growth. Currently Diageo generates 42% of its revenues from emerging markets but plans to increase this figure. If the offer is successful, Diageo plans to keep United Spirits listed in India.
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