Diageo plc and Pernod Ricard SA today confirm that they have signed an agreement to acquire the spirits and wine business of The Seagram Company Ltd., for US$8.15 billion (£5.5 billion) in cash on a debt free basis. The purchase consideration will be funded by Diageo and Pernod Ricard as to $5.0 billion by Diageo and as to $3.15 billion by Pernod Ricard. The agreement is principally conditional on clearance by the anti-trust regulatory authorities.

Diageo and Pernod Ricard will each retain certain key businesses from the Seagram portfolio and the companies have agreed to work together to dispose of the other businesses. The agreement between Diageo and Pernod Ricard governs both the allocation of Seagram businesses and the interim management of those businesses that neither company plans to retain.

Diageo plc

The proposed transaction further reinforces Diageo's position as the world's leading beverage alcohol company. On 17 July 2000, Diageo announced a strategic realignment of its business to focus on its beverage alcohol brands in their most important markets. Almost exactly three years after the creation of Diageo, today's announcement is another milestone in delivering Diageo's stated strategy of profitable growth through focus on priority brands in key markets.

The acquisition will result in Diageo obtaining Crown Royal and VO Canadian whiskies, Captain Morgan rum and 7 Crown American whiskey. Each have leading positions in their categories and Diageo will gain the scale to achieve significant distribution efficiencies. Diageo is also acquiring wine businesses, principally Sterling Vineyards, which will be an important step in building a value-creating wine business.

Diageo is also obtaining several brands with attractive local positions. These include Cacique rum in Venezuela and Spain, Windsor Premier Scotch whisky in Korea and Myers, a premium rum in the US.

Commenting on the announcement, Paul Walsh, Diageo Group Chief Executive said: "This transaction is the next step in transforming Diageo from a food and drinks group with four operating businesses, into a focused leader in the global beverage alcohol industry.

"We are acquiring some great brands with this business. We are prepared to start work immediately on integrating them into Guinness UDV. The creation of UDV by bringing together United Distillers and IDV and the subsequent combination of Guinness and UDV shows that we have a great track record in this field.

True to our managing for value disciplines the acquired businesses will generate economic profit assuming a 9% weighted average cost of capital in the fourth year. It has an immediate positive impact on eps."

Agreement between Diageo and Pernod Ricard

On 6 December 2000, Diageo plc and Pernod Ricard SA confirmed that they had signed a formal agreement governing their bidding arrangements for the Seagram spirits and wines businesses. Its provisions are designed to facilitate clearance of the transaction by anti-trust authorities, in Canada, Europe and in the US. The agreement also covers the split of Seagram's activities, the integration process for the business, the interim management for the non-core businesses which are to be sold over a period of 12 months, and the supervisory team which will co-ordinate it.

The economic interest in these non-core businesses, including operating profits or losses and disposal proceeds, is to be shared between Diageo and Pernod Ricard in the ratio of 61.4%/38.6%, in keeping with the split of the consideration for the acquisition.

Other Information

The agreement with Seagram provides for certain indemnities from Seagram in the event that the right of first refusal asserted by Destileria Serralles over Captain Morgan is upheld in litigation.

Diageo expects that the entire consideration for the businesses it will retain will be represented in its consolidated balance sheet by the underlying net assets, including brand values. Accordingly it does not expect there to be any significant accounting goodwill arising on consolidation. Pending disposal Diageo will reflect its interest in the non-core businesses as assets held for disposal. Consequently, their operating results pending disposal will not be reflected in the profit and loss account of Diageo. The value attributed to the non-core businesses as a whole in agreeing the acquisition consideration amounts to some $670 million which represents a prudent estimate of the expected disposal proceeds. Diageo's share of this is $410 million.

The published accounts of Seagram do not segment the business in accordance with the intended split of the businesses between Diageo and Pernod Ricard. Diageo estimates that the net sales value attributable to the businesses it is acquiring amounted to some $1,090 million in the year ended 30 June 2000, and that the brand contribution before the allocation of overheads amounted to approximately $530 million. Diageo expects the incremental level of overhead attributable to these businesses under its ownership to be some $60 million per annum once integration of the businesses has been completed. Diageo's share of the one-off costs of achieving integration, most of which will be cash costs, are expected to amount to some $700 million, of which approximately 90 per cent is expected to be spent by the end of the first full year following the acquisition.

The financial adviser to Diageo is UBS Warburg. Mr Robert Greenhill of Greenhill & Co has provided additional special advice to Diageo. The principal legal advisers to Diageo are Sullivan & Cromwell in the US and Slaughter and May in the UK.