Per media reports, Diageo plc DEO announced its decision to sell majority of its U.S. and British wine operations for $552 million to the Australian company, Treasury Wine Estates. The deal is expected to close at the end of 2015.
The deal will include the sale of U.S.-based Chateau and Estate Wines, and the Percy Fox businesses based in the U.K. The proceeds from the sale, after tax and transaction costs, will be used to repay borrowings.
The company has already divested the luxury hotel and golf resort, Gleneagles, located in Scotland, to private equity firm Ennismore Capital. In Jul 2015, Diageo sold Gleneagles to cut costs and boost profits. The move re-affirmed its plans to focus more on the core business of selling spirits.
The deal is expected to provide a temporary relief to the brewer from declining profits reported by these underperforming assets. Further the company has been focusing more on it spirits brands and thus shedding its non core assets like wine. In the recently reported third-quarter fiscal 2015, net revenue declined 0.7% and volume dipped 0.8% year over year.
Analysts are of the opinion that Diageo should consider selling its other underperforming assets as well. Investors also speculate that the company is expected to sell off its small wine portfolio.
Currently, Diageo has a Zacks Rank #4 (Sell). Investors interested in the beverage sector may consider Constellation Brands Inc. STZ sporting a Zacks Rank #1 (Strong Buy). A couple of consumer staples stocks worth a look are Tyson Foods Inc. TSN and Hormel Foods Company WWAV carrying a Zacks Rank #2 (Buy).
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