Diageo has been approached by buyout firms Bain Capital, Blackstone group and Texas Pacific about a possible purchase of its Burger King fastfood unit, according to a report published by Bloomberg yesterday [Monday].
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The report suggests that the buyout, in which management may participate, could generate up to £1.48bn (US$2.1bn).
Analysts have warned that allowing a transaction of this nature to proceed could mean that Diageo misses out on unlocking a significant amount of shareholder value, however.
Stuart Price from the European investment bank WestLB Panmure suggested that the Burger King business could be securitised and partially floated to realise as much as £3bn. If, however, Diageo proceeds with the sale to these Buyout firms and they were to subsequently securitise the business, this could lead to an opportunity cost of between £1.4bn and £1.5bn (42-45p per share).
Price therefore reasons that in the short term, the shares will be supported by the ongoing share buyback programme. The company has bought back £480m worth of shares since the interims at the end of February and may continue to buy back shares until they go into close period at the end of June.
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