Diageo on liquids only diet after $2.3bn Burger King sale

Diageo sealed its transformation into a focused drinks group yesterday, with the $2.26bn (£1.4bn) sale of Burger King to a consortium of US venture capitalists led by Texas Pacific.

The drinks giant, which was formed five years ago when Grand Metropolitan merged with Guinness, said it planned to return a "substantial" portion of the sale proceeds to its investors, by buying back its shares. It will invest the remainder in developing new products from its existing Johnnie Walker scotch-to-Smirnoff vodka drinks portfolio.

John Dasburg, Burger King's chairman and chief executive, will stay on to run the fast-food chain, along with his management team. Since Mr Dasburg was recruited last year to turn around the troubled business, sales have recovered and relations with its franchisees have improved. "Working closely with our franchisee partners, we have made good progress in moving this brand forward," Mr Dasburg, the former chief executive of Northwest Airlines, said.

Diageo had planned to float Burger King on the New York Stock Exchange, but shelved the plan in the face of falling stock markets and burger sales.

The drinks group took a £50m hit for restructuring the business last July, since when a management-backed buyout has looked the most likely exit route. It started an auction process for Burger King in March. The San Francisco-based Texas Pacific, which teamed up with Bain Capital and Goldman Sachs Capital Partners, beat off competition from 10 other parties. Diageo's shares rose 9 per cent to 740p on confirmation of the deal.

About 5 per cent of the sale price depends on Burger King meeting performance targets in the year to 30 June 2002, while the tax cost on the deal will be £175m. Financial results for the "home of the Whopper" will be released on 5 September, with Diageo's full-year results.

Analysts said Burger King, which has 11,400 outlets in 57 countries, had fetched a fair price, given market turbulence.