Diageo toasts deal to sell wine units to Australian giant

Diageo is raising £320 million with the sale.

The drinks giant, which ranks as Scotland’s biggest whisky producer, is selling its UK wine arm Percy Fox and US-based Chateau and Estate Wines to Australian giant Treasury Wine Estates – the group behind brands such as Penfolds and Wolf Blass.

The eagerly anticipated deal sees Diageo largely pull out of the wine market to concentrate on its stable of key brands, which also include Guinness stout and Smirnoff vodka.

Chief executive Ivan Menezes said yesterday: “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.”

Blossom Hill is the UK’s second biggest wine brand and is part of the Percy Fox division within Diageo, which also includes Yellow Tail and Sterling Vineyards.

Treasury Wine also adds a number of major US wines, which it said would “transform” its presence in America.

Michael Clarke, chief executive of the Australian group, described the deal as a “game-changer” for the business in the US.

Diageo said it would make some £320m net from the wine disposals, which it will use to repay company borrowings. It means the group will have freed-up £1 billion from the sale of non-core assets since the start of the 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,” added Menezes.

It leaves the group with a minimal interest in wine, including Justerini & Brooks Wine Merchants, the Argentinian wine business of Navarro Correas, Mey Icki and USL wine brands and the Acacia winery and vineyard.

Shore Capital analyst Phil Carroll retained his “hold” recommendation on Diageo’s shares, noting: “Overall, we take today’s statement as a positive and further evidence of management executing its growth strategy by driving a greater focus on its core business.”

FTSE 100-listed Diageo, which operates in 180 countries, has pinned its growth on an expanding middle class in emerging markets in Latin America and Asia who could afford its premium brands such as Johnnie Walker, Captain Morgan and Tanqueray.

But in recent years the global slowdown has pegged back the firm’s growth.

The strong pound and currency movements have given it an added headache in recent months and the firm warned in September this would knock its profits by a bigger-than-expected £150m this year. Its brands also include Bell’s and Baileys.