Johnnie Walker maker strikes deal to offload brands

● Diageo selling 19 of its brands to US group Sazerac for more than £400m

Johnnie Walker maker Diageo is selling a string of brands including Parrot Bay rum to US group Sazerac in a deal worth some $550 million (£428m).

The global drinks giant, which ranks as Scotland’s largest whisky producer, said the proceeds of the deal were expected to be about £340m on a net basis and will be returned to investors through a share buyback.

The brands being sold in the deal are: Seagram’s VO, Seagram’s 83, Seagram’s Five Star, Myers’s, Parrot Bay, Romana Sambuca, Popov, Yukon Jack, Goldschlager, Stirrings, The Club, Scoresby, Black Haus, Peligroso, Relska, Grind, Piehole, Booth’s and John Begg.

Diageo, which also counts Smirnoff and Guinness among its leading brands, has entered into ten-year supply contracts with Sazerac for five of the drinks being offloaded. Supply of all other brands will transition to Sazerac within a one-year period from completion of the deal.

Diageo said it was hoping to complete the sale, which is subject to regulatory approval, early next year.

Ivan Menezes, the group’s chief executive, said: “Diageo has a clear strategy to deliver consistent efficient growth and value creation for our shareholders.

“This includes a disciplined approach to allocating resources and capital to ensure we maximise returns over time. Today’s announcement is another example of this strategy in action.

“Thedisposalofthesebrands enables us to have even greater focus on the faster growing premium and above brands in the US spirits portfolio.”

The US accounts for about 45 per cent of Diageo’s group profits.

Edward Munday at Jefferies International said the sale was “further evidence of the Diageo change story”. He added that the deal would boost growth in Diageo’s US spirits division.

Analysts at Killik & Co noted: “We continue to like Diageo for its exposure to longterm global consumer trends, as well as an increasing focus on its leading global brands, cost control and shareholder returns.”

In September, Diageo said it was expecting to see its profits watered down to the tune of £45m after being hit by currency movements. The group also warned over “volatility” in some of its markets.

In a stock market update at the time, Diageo said trading for the year had “started well” and that performance was still in line with forecasts. However, both sales and operating profits are expected to take a modest hit due to currency fluctuations.

Menezes told investors: “In recent weeks, we have experienced some increased emerging market foreign exchange volatility, which has been partially offset by a strengthening of the dollar.

“Based on current rates we currently expect exchange to have a negative impact on net sales of £175m and a negative impact on operating profit of £45m for the fiscal year”.