UK's Diageo To Sell 19 Brands To U.S.-Based Sazerac For $550M
Diageo Plc is selling 19 spirits brands, including Seagrams VO Canadian whiskey and cinnamon schnapps Goldschlager, to US-based company Sazerac for $550 million (€488 million) as it focuses on its premium whiskey brands such as Johnnie Walker in the United States.
Diageo, also known for Smirnoff vodka and Guinness stout, said on Monday it would return the net proceeds of about £340 million (€388 million) to shareholders through a share repurchase.
Sky News reported in May that the company was in talks to sell some US-focused brands for an overall price tag of between $500 million and $1 billion.
The sale, which also includes whiskey brands such as Seagram's 83, Seagram's Five Star and Jamaican rum Myers's, will reduce Diageo's pre-exceptional earnings per share by 1.9 pence per share in the first full financial year after closing.
"The disposal of these brands enables us to have even greater focus on the faster growing premium and above brands in the US spirits portfolio," the company said in a statement.
The North American region is the biggest market for premium drinks in the world, and accounts for a third of the British company's sales and nearly half its operating profit.
Diageo has been expanding the reach and improving the marketing of premium, global brands like Johnnie Walker.
U.S. liquor sales hit a record $26.2 billion (€23.2 billion) in 2017, fuelled by high-end brown liquor and a big thirst for tequila and vodka, an industry group, the Distilled Spirits Council, said in February.
The council, which represents companies such as Diageo, Pernod Ricard SA and Brown-Forman Corp, had then said higher volumes reflected millennials' taste for high-end and super-premium blended scotch and whiskey products.
Diageo, part of the UK's blue-chip index, said it expects the sale to close in early 2019 and to bring in a one-time gain of roughly £110 million (€125 million).
Jefferies analysts said the deal is about 2% dilutive to FY19 earnings per share but worth 40 basis points to U.S. organic growth and was medium-term value accretive via the shift to the more premium US segment.
The company has also agreed to long-term supply contracts with Louisiana, US-based Sazerac.
Sazerac, which traces its roots to the early 19th century, is an independent, family owned company in the United States, home to brands such as Buffalo Trace and Pappy Van Winkle bourbon.
Shares of Diageo were down about 0.1% at 2,744.25 pence by 0846 GMT, after trading in positive territory initially.