14th Oct 2015 05:50
LONDON (Alliance News) - Diageo PLC on Tuesday said it has agreed to sell its US and UK wine operations to Melbourne, Australia-based Treasury Wine Estates Ltd for USD552 million in cash, as it offloads non-core assets.
Diageo, which owns renowned spirits brands such as Johnnie Walker, Smirnoff, and Baileys, said the net proceeds of about GBP320 million, after tax and transaction costs, will be used to repay borrowings. Treasury Wines put the price tag at USD600 million when including the assumption of capitalised leases of USD48 million.
The disposal will see the US-based Chateau and Estate Wines and the UK-based Percy Fox businesses transfer to Treasury Wine Estates.
"Diageo's strategy is to drive stronger, sustained performance through focus on our core portfolio and today's announcement is another element of that strategy in action. Wine is no longer core to Diageo, and this sale gives us greater focus," Chief Executive Ivan Menezes said in a statement.
Menezes said that on completion of the deal Diageo will have released GBP1 billion from the sale of non-core assets since the start of the financial year.
"This proactive portfolio approach has focused the business, enhanced our financial strength, improved our returns and strengthened the business, positioning us even more firmly to deliver our performance ambition," Menezes said.
Diageo said it realised USD260 million, or about GBP174 million, in June 2010 from a sale and leaseback arrangement relating to some of the land and facilities which Diageo Chateau and Estate Wines operates.
The deal is about 1.2 pence per share dilutive to pre-exceptional earnings per share in the first full year assuming a marginal interest rate of 2.5%, Diageo said.
It will result in an exceptional loss on disposal of approximately GBP150 million after tax.
"Diageo continues to be the guarantor under the June 2010 sale and leaseback agreement and in accounting for the disposal Diageo has fair valued the guarantee assuming it expires in 2030," the company said.
Completion of the sale will restrict Diageo's wine interests to Justerini & Brooks Wine Merchants, the Argentinian wine business of Navarro Correas, the wine brands of Mey Icki and USL, the Chalone brand and assets, and the Acacia winery and vineyard.
The deal gives Treasury Wine US brands including Beaulieu Vineyards and Sterling Vineyards, as well as Blossom Hill in the UK. The purchase will double the Australian winemaker's US revenue from luxury and premium wine.
"This acquisition will transform our US business into a larger player of scale in the attractive Luxury and Masstige segments of the high growth US market. The additional supply of Luxury and Masstige wine will be a game-changer for our US brands, providing us with an immediate opportunity to step-change our growth in the US, Canada, Asia and Latin America," Treasury Wine Estates Chief Executive Michael Clarke said in a statement.
The deal is subject to certain regulatory approvals, including anti-trust approval in the US, and is expected to compete in about three months.
By Samuel Agini; [email protected]; @samuelagini
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