UK: Brown-Forman settles Diageo dispute
The settlement agreement will see Brown-Forman pay Diageo £8.9m (US$14.3m) to end the controversy between the parties.
Diageo distributed Jack Daniel's in the UK under a contract that expired on July 31, 2002. Brown-Forman now distributes Jack Daniel's and its other spirits brands under a cost-sharing agreement with Bacardi.
However, Diageo claimed that it had the right to extend the contract for an additional three years, based on passing certain required performance standards in the contract. Diageo claimed damages from Brown-Forman in a range of £35m to £42m for profits it would have earned during the extension period.
Brown-Forman denied that Diageo had met the contract extension standards and sued Diageo in the UK for a legal declaration that it was not required to extend the contract. A trial had been scheduled for March 2004. But this settlement ends the controversy between the parties, with each side to bear its own litigation costs.
Brown-Forman said that its previous earnings guidance for fiscal 2004 of $4.10 per share to $4.30 per share did not include the full impact of the Diageo settlement. The payment to Diageo will reduce this year's earnings by approximately $0.11 per share.
However, the company still expects to achieve fiscal 2004 earnings within its previously announced range.
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