Diageo Continues Its Acquisition Strategy to 'Premiumise' Portfolio With Don Papa

Diageo is to acquire Philippines-based dark rum manufacturer Don Papa for an initial consideration of EUR 260 million (GBP 228 million). If certain undisclosed performance metrics are achieved however, the total consideration could be as much as EUR 437.5 million (GBP 383 million). Valuation notwithstanding, we think this is aligned with Diageo's acquisition strategy to increase its exposure to superpremium price segments, which offer faster growth rates than the mass market and significant headroom to further "premiumise" the consumer. We are raising our fair value estimate for Diageo to GBX 3,200 per share from GBX 3,100, but this is related to updating the model for foreign-exchange rates rather than material value creation from this transaction.