Diageo Uncorks Plan To Sell Global Wines Unit

The FTSE-100 drinks giant which owns Guinness and Smirnoff is in detailed talks about a sale of its wine brands as it responds to City pressure to improve its performance.

Sky News has learnt that Diageo has in recent weeks accelerated plans to offload a portfolio which includes Blossom Hill and Piat d'Or.

The party which is said to be in the driving seat to acquire the brands is Treasury Wine Estates, an Australian wine producer which is run by Michael Clarke, a former chief executive of the UK-based Premier Foods (LSE: PFD.L - news) .

Sources said that a deal could be announced by Diageo during the course of October, although they cautioned that a transaction had not yet been signed with Treasury and that it could still fall through.

A number of other parties have also expressed interest in buying the business from Diageo since the FTSE-100 company began sounding out potential bidders earlier this year.

If Treasury does proceed with a takeover of the business, it would add Diageo (LSE: DGE.L - news) 's brands to a collection including some of the most prominent names in global wine-making.

The Australian company owns Penfolds, Wolf Blass, Lindemans, Matua and Rosemount, and is one of the biggest producers in the world.

Diageo, which also owns Justerini & Brooks, the wine merchant which has held a royal warrant since 1760, has periodically considered offloading its wines business, which accounts for less than 5% of its global revenue.

There has been growing pressure from some investors on Ivan Menezes, Diageo's chief executive, amid a slowdown in emerging markets and currency weakness.

However, last week's trading update offered him some respite, with Mr Menezes saying that the financial year had started well and that sales growth would be better this year than last.

It (Other OTC: ITGL - news) is unclear whether any sale could include the agreements that Diageo has with LVMH, the luxury goods group, to distribute champagne brands Dom Perignon and Moët & Chandon.

A disposal of large parts of the business would unwind a chunk of the deal struck by Mr Menezes' predecessor, Paul Walsh, in 2000 when Diageo bought parts of Seagram in a £5.5bn joint bid with France's Pernod Ricard (Paris: FR0000120693 - news) .

Diageo has been going through a turbulent period, with sales in emerging markets such as Venezuela and China experiencing sharp slowdowns, and an intensifying row about the stewardship of its majority-owned Indian operations.

Mr Menezes said of the recent sales figures, which were partly the result of adverse currency movements:

"Our performance in the quarter reflects continued tough conditions in the emerging markets and subdued consumer demand in some developed markets. However it also reflects the actions we have taken to ensure we are building a stronger business.

"We will continue to strengthen Diageo. We are investing in our brands, enhancing our route to consumer, introducing great innovations...winning in reserve and focusing on cost and cash. We can realise Diageo's full potential and deliver our performance ambition."

The company's brand portfolio also includes Captain Morgan rum, Johnnie Walker whisky and Baileys.

In addition to its wine division, Diageo recently announced the sale of Gleneagles, the hotel and golf resort which staged last year's Ryder Cup.

A Diageo spokesman told Sky News on Wednesday: "Wine is a small part of our business but it plays an important role."

A spokeswoman for Treasury said the company did not comment on market speculation.