Shares in Fevertree (FEVR:AIM) have fizzed 8% higher to £23.47 on a report from The Telegraph that Unilever (ULVR) is considering a takeover - but we’re not convinced.
Tonic water specialist Fevertree has tapped into soaring gin demand, helping its share price more than double from £11.03 in the last year alone. The company floated on the stock market just over three years ago at a mere 134p per share.
It currently trades on approximately 60 times earnings per share in the year to 31 December 2018, which is a high rating.
Media reports speculate that Unilever would have to pay £28 per share for the firm. We believe that’s simply putting a 30% bid premium on to yesterday’s share price.
There are plenty of reasons to suggest Unilever isn’t going to make a bid.
Firstly, Fevertree’s huge sales growth and market growth potential is not a new story. Unilever would have had plenty of chances to make a takeover when the share price was much lower than today. Everyone’s known about Fevertree’s appeal - so why wait until now to pounce?
Secondly, competition is a mounting issue, highlighted by Coca-Cola’s recent decision to boost marketing for Schweppes.
Schweppes’ previous sleepy approach was one reason why Fevertree was able to grab market share quickly.
Britvic (BVIC) is also in on the game, backing a premium mixer range under the London Essence Company brand.
While Fevertree may be a great strategic fit for Unilever, behind popular brands such as Ben & Jerry’s and Lipton, the speculated suitor is in the process of driving long-term value through disposals. We don’t believe it is actively looking for acquisitions.
This strategy is already in motion as Unilever sold its spreads business for €6.8bn to KKR in December.
So where did this bid rumour originate? We saw some talk on social media yesterday with note to Fevertree’s recent appointment of two beverage industry experts as non-executive directors - one of them currently works at Unilever.
Would you really appoint a director from a company who wants to make a takeover? We don’t think so.
