Dive Brief:
- Treasury Wine Estates Ltd. will acquire most of Diageo's U.S. and U.K. wine assets for $552 million, which will be funded with new debt and a rights offering.
- Diageo is likely pursuing the divestment as a way to turn its efforts back to its ailing spirits business.
- "Wine is no longer core to Diageo and this sale gives us greater focus," Diageo CEO Ivan Menezes said in a statement.
Dive Insight:
In its latest earnings report, Diageo reported that volumes in North America had declined by 3%. Also, last month in a trading update for its annual meeting, Diageo reported that weaker currencies outside of the U.K. will likely drive the company's profit down by £150 million ($229 million), which was more severe than the previously thought £100 million ($153 million).
Wine, which comprises about 4% of Diageo's sales, fell 1% in fiscal 2015, which may have been part of what prompted Diageo to consider a sell-off of the segment's assets. According to Diageo, selling the company's wine business would garner about $489 million in net proceeds, which Diageo will use to repay debt.
Diageo has other ideas in mind to revive its spirits business.
"Mr. Menezes has moved to drop prices in the U.S., shed certain noncore assets, and sharpen Diageo’s focus on higher growth regions like Africa and India," The Wall Street Journal reported.