After wrapping up its long-awaited sale of Pillsbury, British drinks group Diageo, owner of Guinness, is set to strike a rum deal soon to ease the passage of its joint takeover of the Seagram drinks empire.
Diageo is in talks with US regulators who blocked the $8.15 billion (€9 billion) Seagram deal last week, but industry sources say the group hopes to sell its Malibu coconut rum brand to its Seagram bid partner, Pernod Ricard, to overcome US concerns.
"We are talking to the Federal Trade Commission (FTC), and the issue is over rum," said Diageo chief executive Mr Paul Walsh after announcing the completion of the Pillsbury sale.
Diageo shares rose 2.3 per cent to 702p after the Pillsbury deal was completed close to the initial price.
The US regulator blocked the Diageo-Pernod takeover of Seagram from Vivendi Universal nine days ago, arguing that the deal would create a duopoly between privately-owned Bacardi and Diageo in the US rum market. This would reduce the number of big rum players to two from three, an issue of concern to the FTC.
Bacardi has a 51 per cent share of the US rum market through four brands compared to Seagram's 20.6 per cent - largely through Captain Morgan, but also through Myers's and Parrot Bay. Diageo's 5 per cent share is made up solely by the Malibu brand.
The rum story is confused by the ownership of Captain Morgan, which Diageo agreed to buy from Seagram, as rival Allied Domecq is contesting ownership of the brand in the courts.
Mr Walsh says Seagram has applied for a summary judgment from the Puerto Rican courts and is hopeful the case will soon be thrown out.
Allied struck an alliance with rum supplier Destileria Serralles for control of the brand, as Serralles said the Seagram deal triggered a change of control clause allowing it to take control of Captain Morgan and sell it to Allied.
Diageo will not want to sell Malibu, valued at £600-£650 million sterling (€970-€1,050 million)only to lose Captain Morgan through the courts, analysts said. Captain Morgan has a value of $1.8 billion, according to an indemnity payment Diageo will receive from Seagram if it loses the court battle.
Analysts say Captain Morgan has greater potential as it is the world's number two rum brand after Bacardi, and has a 15-16 per cent US rum market share. The brand sells 3.6 million cases a year, whereas Malibu sells 1.9 million cases.
Diageo last week completed the sale of Pillsbury to General Mills, valuing its US food business at $10.4 billion.
In the deal, Diageo gets a 32 per cent stake in General Mills worth $5.9 billion, cash and assumed debt of up to $4.5 billion, of which up to $670 million will be paid to Diageo depending on its stake in General Mills and the US group's share price in 18 months.- (Reuters)
