Diageo sells wine arm to Treasury

14th October, 2015 by Rupert Millar

UK drinks giant Diageo has agreed the £361 million sale of the majority of its wine division to Treasury Wine Estates.

blossom_hill_range_winesThe purchase includes Percy Fox in the UK and the Chateaux & Estate Wine business in the US and brands such as Blossom Hill, Piat d’Or and Sterling Vineyards.

The return to the US is of particular interest with many commentators saying that Treasury is preparing for a “second tilt” at the US market, just months after shedding several parts of its US brand portfolio and having destroyed thousands of cases of unsold wine in what has widely been viewed as a “disastrous foray” into the North American market.

Treasury’s CEO, Michael Clarke, has already described the deal as a “game changer” that gives the company “an immediate opportunity to (increase) our growth in the US, Canada, Asia and Latin America.”

Already the owner of Beringer and Rosemount, the acquisition of Chateaux & Estates allows Treasury the chance to double its “masstige” portfolio – a key area that Clarke has been focusing on as he attempts to get the Australian company back on track.

Clarke added in a statement: “The acquisition of Blossom Hill in Diageo’s UK wine business will provide us with the scale and critical mass to deliver enhanced value creation from our combined Commercial businesses by accelerating our separate focus on the Commercial portfolio, globally.

“As we integrate the acquisition of Diageo Wine we will preserve the quality of the wines while replicating the journey that we began with TWE eighteen months ago. This will include increasing the efficiency and profitability of the business with a focus on costs, investing in the valuable brands we have acquired and delivering sustainable long-term top line growth – globally.

“This acquisition will transform our US business into a larger player of scale in the attractive Luxury and Masstige segments of the high growth US market.

“We remain committed to our strategic roadmap of transitioning our business from an order-taking agricultural company to a brand-led and capital-light, marketing organisation. The acquisition is highly complementary to this strategy and I am confident our combined businesses will deliver both immediate and long term benefits to our shareholders.”

The deal is a further sign that Diageo is looking to shed its non-spirits brands.

Diageo’s CEO, Ivan Menezes, admitted that wine was “no longer core” to Diageo’s business and earlier this month it off-loaded US$780m worth of its brewing assets in Jamaica, Malaysia and Singapore to Heineken. However it is unlikely it will divest itself of Guinness any time soon.

Furthermore, while Treasury has shown signs of fiscal improvement recently, Diageo has suffered an uncharacteristic wobble, slashing its profit outlook going into 2016 by £150m last September.

Menezes said: “Diageo’s strategy is to drive stronger, sustained performance through focus on our core portfolio and today’s announcement is another element of that strategy in action. Wine is no longer core to Diageo and this sale gives us greater focus.

“With the completion of this transaction Diageo will have released £1 billion from the sale of non-core assets since the start of the financial year. This proactive portfolio approach has focused the business, enhanced our financial strength, improved our returns and strengthened the business, positioning us even more firmly to deliver our performance ambition.”

Rumours about a possible deal first surfaced earlier this year and while still subject to regulatory approval, the agreement is expected to be complete by the end of the calendar year.

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