Diageo sells US, UK wine biz for $552m to Aussie firm

UK alcoholic beverage giant Diageo Plc is planning to offload its wine operations across the US and the UK for $552mn (euro483mn) to Treasury Wine Estate, an Australia-based company. Treasury Wine Estate is also in the process of acquiring Blossom Hill, Britain's second largest wine brand. The acquisition deal for Diageo is subject to the approval of UK regulator and also the US anti-trust review. The acquisition deal is expected to be completed in next three months.

Headquartered in London, Diageo Plc is the world's largest producer of spirits and a major producer of beer and wine. Diageo has decided to sell its Beaulieu vineyards and other famous US wine brands to Australian company so that it can focus on its core business. The popular brands of Diageo include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness.

Diageo Company CEO Ivan Menezes said in a statement that "wine is no longer core to Diageo and this sale gives us greater focus. 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."

Treasury Wine Estates is the world's biggest standalone wine maker. Michael Clarke, CEO, Treasury Wine Estates, said: "The deal will transform our US business into a larger player of scale in the high-growth market." Diageo is in the process of shedding non-core assets.

US-based Chateau and Estate Wines and the UK-based Percy Fox business are also part of the acquisition deal and will be owned by the Australian company Treasury Wine Estates. Diageo is planning to use net proceeds of GBP320mn after tax and transaction costs for repaying its debt and other borrowings.

Treasury Wine Estates has underwritten a rights issue mobilizing A$486mn ($350mn) to finance the acquisition deal. The pre-tax earnings of Treasury are poised to grow 29 percent for the year ending June 2016.

The sale in progress is taking place during the tenure of chief executive Ivan Menezes. He recently said that Diageo was selling stakes in two beer brewers to Heineken for $780.5 million, while buying a 20 per cent stake in Guinness Ghana Breweries from Heineken.

Treasury Wine Estates hopes that the buying of major brands including Sterling Vineyards, Yellow Tail, Blossom Hill and Piat d'Or as well as the Chateaux & Estate Wine business in the US would immediately double its net sales volume. These popular brands will also enhance its luxury and image in home country.