COMMENT: Diageo - a whopper of an auction

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Diageo, the drinks giant, is about to announce the identity of Burger King's new owner. CEO John Dasburg's recent changes have already begun to turn BK around, improving its chances once the divorce is complete. Diageo, meanwhile, is trying to focus on its core drinks business - but the growth here is worse than it had hoped.

Diageo decided to sell the Burger King chain of fast food restaurants in March this year. Before that, a partial floatation had been considered, but Diageo eventually rejected this option in favour of a buyout. The company wishes to separate from Burger King to concentrate on its core drinks business, which includes the Johnny Walker and Smirnoff brands, as well as Guinness.
Burger is expected to fetch approximately $2.3 billion, and there are now only two bidders left. There is now just a contest between two groups. One comprises Bain Capital, Texas Pacific and Goldman Sachs Capital Partners, the other Thomas H Lee (whose former partners, Blackstone and Madison, have reportedly pulled out).

John Dasburg, Burger King chairman and CEO, has been trying to improve the chain's disappointing performance over the past year. This has been done through changes in management as well as through the introduction of new items on Burger King's menu. These include a chicken Caesar salad and the Chicken Whopper, which complements Burger King's range of Whopper hamburgers. According to Burger King's first half trading statement, the company's performance is now improving.

Earlier this year, Diageo was forced to sell Malibu rum to Allied Domecq to avoid a regulatory dispute following its joint acquisition of Seagram with Pernod-Ricard. But while this enabled Diageo to keep Captain Morgan rum, the company's new rum-based drink, Captain Morgan Gold, has sold less well than it hoped.

Related research: Datamonitor, "Designer alcoholic drinks" (DMCM0049)

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