On Thursday, Diageo had said it was working with the SEC to provide information on its distribution methods, after the Wall Street Journal said the regulator is checking whether the company shipped excess inventory to boost results. The shares fell as much as 2.1% in London trading.
Two years after taking the helm with a view that selling drinks is a simple business, CEO Ivan Menezes is grappling with stagnating sales, troubled acquisitions in China and India, and a share price that has lagged the European Food & Beverage sector by over 30 percentage points over his tenure.
“It’s not the best management team in class,” said Thorsten Winkelmann, a portfolio manager at Allianz Global Investors. He spoke prior to the announcement of the SEC inquiry.
Speculation by Brazilian magazine Veja that investment firm 3G Capital is considering a takeover pushed the stock up as much as 8.7% on June 8.
“Diageo has not been firing on all cylinders,” said Kevin Dreyer, a portfolio manager at Gabelli Funds who holds the stock.
About a quarter of the bottles Diageo sells fall under the Smirnoff vodka brand, which has suffered from an over-expansion into flavoured varieties. Another challenge is its beer business, which includes Guinness stout and Red Stripe lager and saw an 11% drop in volume last year.
A sale of beer could fetch as much as £11bn (€15.6bn), bolstered by the potential for growth in Africa and the lower tax rate on Guinness in Ireland, said Simon Hales, an analyst at Barclays.
The main obstacle to a deal may be Menezes himself, who has said Diageo needs beer in Africa to help pave the way for consumption of spirits.
In Nigeria, the firm uses separate sales teams and distribution channels for the two drinks categories.
“Beer and spirits are not necessarily an obvious fit,” said Richard Marwood of Axa Investment Managers, who oversees £10bn in funds including Diageo stock.