DGE Diageo Plc

By Daphne Zhang 

LONDON -- Diageo PLC is selling a portfolio of 19 brands, including Seagram's VO whiskey and cinnamon schnapps Goldschläger, to Sazerac Co. for $550 million as it pivots toward premium brands and higher-growth products.

The world's largest liquor maker, which owns Johnnie Walker whisky and Tanqueray gin, said Monday it would return net proceeds of about GBP340 million ($441 million) to investors through share buybacks.

Diageo hired bankers earlier this year to sell the portfolio, which also includes Myers's rum, Popov vodka and Romana Sambuca. At that time, people familiar with the matter said the brands could generate proceeds of up to $1 billion.

Kathryn Mikells, Diageo's finance chief, said the deal would allow the company's U.S. spirits business to focus on premium brands. The brands sold Monday were mostly at the lower end of the market, which has seen a decline, she added.

"People are not drinking more, they are drinking better," she said.

The deal is U.K.-listed Diageo's latest move to shed lower-growth assets and focus more on pricier, international brands that are in higher demand.

Last year, Diageo bought Casamigos, an upscale tequila brand co-founded by actor George Clooney that increased its exposure to the fast-growing tequila market. It has also tried to get drinkers to trade up to high-end variants of its existing brands.

At the same time, it has sold Scottish golf resort Gleneagles Hotel Ltd. to an investment company and most of its wine portfolio to Treasury Wine Estates Ltd.

Analysts at Jefferies said Monday's deal was a "decisive move to accelerate growth in the U.S." that would allow Diageo to focus more -- both in terms of marketing spend and management time -- on bigger opportunities. However, they also flagged the risk that the brands could be revitalized under new ownership and that the sale could hurt relationships with wholesalers and retailers.

For Sazerac, the deal is the New Orleans-based company's latest move to bolster its portfolio. The closely held distiller, with operations in several U.S. states and overseas, has snapped up several brands in recent years, including Brown-Forman Corp.'s Southern Comfort and Pernod Ricard SA's Danish vodka brand FRÏS.

Diageo said it expects the deal to complete early next year, to generate a GBP110 million one-time gain and reduce pre-exceptional earnings by 1.9 pence a share.

The company has agreed to long-term supply contracts with Sazerac for five of the brands for 10 years.

(END) Dow Jones Newswires

November 13, 2018 03:47 ET (08:47 GMT)

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