Diageo stalks LVMH brand
Liquor giant sets sights on Hennessy cognac and denies plans to dispose of Burger King chain
Sunday 09 November 1997
John McGrath, who will be Diageo's chief executive, said selling a major liquor brand in the US to gain regulatory approval for the merger would cost no more than 5 per cent of operating profit.
And while Mr McGrath denied Diageo plans to sell its Burger King fast- food chain, he acknowledged it may consider such a move.
"If, at some time in the future, any part of the business, including Burger King, would be better in alternative ownership, we would consider that," said Mr McGrath, currently chief executive of Grand Met.
Analysts have long speculated Grand Met will sell Burger King because it doesn't fit with the rest of the company.
Diageo will have more than 1,100 subsidiaries, ranging from liquor, beer and packaged food to hamburger and ice-cream parlour chains.
Diageo's most vocal - and biggest - shareholder, LVMH's chairman Bernard Arnault, who will have about 11 per cent of the combined company, has argued the group is too disparate.
Mr McGrath disagrees. "There are only four basic businesses," he explained. "We believe we're good managers and the key is to have focus in those four businesses with high-quality management."
Diageo, which owns the Johnnie Walker and J&B brands, Smirnoff vodka and Guinness stout, has no cognac brand. LVMH's Hennessy could fill that gap.
Earlier this year, Mr Arnault offered to sell Diageo his Moet Hennessy champagne and cognac brands, fold them into Diageo's combined liquor businesses, and spin that off into another company.
Mr Arnault also asked for a 35 per cent stake in the new company, a request that was rebuffed by the UK companies.
"Arnault has the idea Hennessy is worth more, and that's a stumbling block," said John Keele, a drinks analyst at UBS. "One would have to surmise that he's keen - but not that keen - on selling and he doesn't want to sell cheap."
While cognac sales have suffered from declining Japanese demand, Mr McGrath said he is still interested.
"There's room for the [cognac] brand in our portfolio at the right price and at the right time," said Mr McGrath. "But we would be unlikely to buy it at what I think [Arnault] thinks is the right price."
The company is unlikely to make liquor acquisitions ahead of merger approval from US authorities expected at the end of the month.
The company may be forced to sell some brands in the US because owning both Dewar's and Johnnie Walker could be considered anti-competitive.
The company has already been required by EU officials to sell Ainslie's whisky and Dewar's for approval of the merger in Europe.
Mr McGrath said the new company won't be greatly exposed to weakening South-east Asian economies, which provide "just under" 12 per cent of total profits.
Mr McGrath said the stronger British pound will dent profit. Every one-penny change in the pound's value against the dollar affects profits by "about pounds 4m one way or the other on the Grand Met side, so it will be more than that," he said. "That's life."
- 1 All Blacks Aaron Cruden misses New Zealand flight after drinking session, has brilliant excuse
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': TV reporter Charlo Greene quits live on air in spectacular fashion
- 4 Alicia Keys leaks nude photo 'to create a kinder and more peaceful world'
- 5 Clothes store Joy angers mental health campaigners with Twitter exchange on bipolar disorders
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...