Diageo to tweak strategy as OFT deadline looms

NEW Diageo chief executive Ivan Menezes will use this week’s full-year results to tweak the emerging markets strategy laid out by his predecessor Paul Walsh, as the Office of Fair Trading’s deadline approaches for evidence relating to the distiller’s take-over of Whyte & Mackay.
Actress Christina Hendricks at a whisky tasting for Diageo-owned Johnnie Walker. Picture: GettyActress Christina Hendricks at a whisky tasting for Diageo-owned Johnnie Walker. Picture: Getty
Actress Christina Hendricks at a whisky tasting for Diageo-owned Johnnie Walker. Picture: Getty

Diageo, Scotland’s largest whisky maker, took a controlling stake earlier this month in Indian tycoon Vijay Mallya’s United Spirits, owner of Glasgow-based Whyte & Mackay.

The OFT last week called for opinions regarding the effect that the deal would have on the UK spirits market, with industry experts having until Friday to submit their views.

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Diageo already owns brands such as Bell’s, Johnnie Walker and Talisker, while Whyte & Mackay’s labels include Dalmore, Jura and whisky liqueur Glayva.

Regulators could order the sale of Whyte & Mackay if they think Diageo now controls too large a slice of the UK whisky market following the deal.

Phil Carroll, an analyst at Shore Capital, said: “I don’t think Diageo would be bothered one way or the other. I think they’d be quite happy to sell Whyte & Mackay. It wasn’t the asset Diageo was going for – it was the infrastructure and the Indian business.”

Investec Securities analyst Martin Deboo added: “Let’s be clear: they’re not launching an inquiry into the United Spirits deal in India, they’re launching an inquiry into issues in the UK from Diageo buying Whyte & Mackay.

“That was flagged by Diageo last November. The expectation was that Whyte & Mackay would have to be disposed of.”

Industry insiders have speculated that Campari or Bacardi could be potential buyers.

Italian drinks maker Campari already owns the Glen Grant distillery in Rothes and has pulled off a string of deals in recent years to buy Wild Turkey bourbon for $575 million (£413m), Skyy vodka for $440m (£286m) and, most recently, the spirits arm of Jamaican rum maker Lascelles for $415m (£270m).

Rum maker Bacardi bought John Dewar & Sons in 1997, taking control of 6 per cent of malt production through distilleries at Aberfeldy, Aultmore, Craigellachie, Macduff and Royal Brackla, near Nairn.

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Menezes, previously chief operating officer at Diageo, took over from Walsh after his 13 years in charge on 1 July.

Analysts expect the group’s focus to shift from Europe to faster-growing economies.

Nomura analyst Ian Shackleton said: “With the appointment of Menezes, we see even greater focus on growth in emerging markets, which we expect to be at least 50 per cent of revenues by 2015, excluding United Spirits, and for mergers and acquisitions (M&A) to reflect this, with further moves in local spirits.

“Diageo’s strong balance sheet offers scope for further M&A, especially in local spirits. Longer term, we still see potential for a quantum leap, possibly with Moët Hennessy.”

The City expects Diageo to post a 4.8 per cent rise in sales to £11.4 billion, with operating profits forecast to have risen by 8.4 per cent to £3.5bn.