COMMENT: Diageo choosing buy-backs over buy-ins

By | 3 September 2002

Diageo is to use the proceeds from the Burger King sale for a share buy-back. By ridding itself of its hamburger business, Diageo has completed its restructuring and is now exclusively an alcoholic drinks company. Using the proceeds from the sale to buy back shares rather than for acquisitions makes sense, as other opportunities already exist within the company.

Diageo, the world's largest spirits company, which counts Johnny Walker and Smirnoff amongst its brands (as well as brewing Guinness), last month sold Burger King; it is due to receive £1.5 billion in payment next month.

Many investors were worried that Diageo, like its rival Allied Domecq, would use the money for acquisitions. However, Diageo says it intends to use this sum to buy back some of its shares. This is a more tax-efficient way of returning money to the investors than paying out a dividend.

Last year, Diageo sold the Pillsbury food group to General Mills. The Burger King sale marks the completion of Diageo's transformation into a pure alcoholic drinks company, capitalizing on the success of spirits and Guinness. Diageo is expected to announce increased full-year profits this year, in the region of £2 billion, compared to £1.72 billion last year.

This is in great part thanks to the success of Smirnoff Ice, the market leader in premixed spirits.

Diageo intends to grow its wine business gradually, instead of acquiring wine companies as some had expected. The company does have a few problems despite its overall success: the recent launch of Captain Morgan Gold failed to meet the high expectations caused by the success of Smirnoff Ice. The drink has so far failed to increase the size of its slice of the Captain's pie.

The company also has still to fully integrate Seagram, which it bought in late 2000. Seagram was acquired in a joint venture with Pernod Ricard, and enabled Diageo to add more premium brands to its portfolio, but it had to sell Malibu coconut rum to Allied Domecq to appease US regulators.

With so much to do already, it is probably wise that Diageo concentrates on realising the full benefits of the brands it already owns, rather than acquiring new ones.

Related research: Datamonitor, "Going out" (DMCM0082)

Companies: Diageo, Allied, Pernod

View next/previous articles

Currently reading -

COMMENT: Diageo choosing buy-backs over buy-ins

There are currently no comments on this article

Be the first to comment on this article

Related articles

US: Fortune confirms Allied bid talks

The US consumer goods group Fortune Brands has confirmed it is in talks about launching a joint bid with Pernod Ricard for Allied Domecq.

UK: Diageo launches global ads for Smirnoff Ice

Diageo is to launch a new global advertising campaign for Smirnoff Ice. The first ad in the global campaign, 'Garden', launches in Great Britain on April 11th on terrestrial and satellite TV.

FRANCE: Pernod confirms AD acquisition talks

Pernod Ricard is looking to acquire Allied Domecq.

just-drinks tagline

Not a member? Join here

Decrease font sizeDecrease font sizeDecrease font size Increase font sizeIncrease font sizeIncrease font size Comment on this article Email this to a friend Print this page