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MemoTo:Diageo Plc.From:Abenaa Ampratwum, Scott Foglietta, Yang XinCC:Maurry TamarkinDate:January 31, 2014Re:Capital StructureDiageo was created by the merger in 1997 of Guinness plc and Grand Metropolitan plc, two of the world’s best-known drinks companies. At the time of the merger, Grand Metropolitan’s major brands included J&B, Smirnoff and Gilbeys, as well as Baileys Original Irish Cream. These strong spirits brands were seen as complementing the leading position held by Guinness in stout and beer. The company’s history of developing great brands extends beyond these brands, however. Today Diageo produces a range of fine beers, ales and lagers in a number of locations where there is an established brewing tradition and where high quality raw ingredients can be locally sourced. Diageo was trying to refocus its long term strategies by reducing subsidiaries that did not compliment its vision. Its business was concentrated in the fast food, food packaging, and alcoholic beverage. Its largest and fastest growing division was wine and spirits. This segment had the most of the company’s sales and gave the largest profit margin. The next largest division was Guinness, which Diageo intended to merge with wine and spirits to save cost. The last divisions were Pillsbury and Burger King. The company’s new strategy was to focus on alcoholic beverage, driving growth around existing brands and providing an improved base for sustainable growth. This restructuring process involved first divesting its Pillsbury business and then phasing out its Burger King line in two years. Subsequently, Diageo would concentrate on organic growth through acquisitions in the alcoholic beverage industry. To do this, the company was expected to have annual cash flows between 3 and 8 million Dollars to accommodate all the capital expenditure and to finance all the proposed acquisition projects. Although Diageo was one 1
of the largest alcoholic beverage firms, these acquisitions would position it to capture majority market share and certain efficiencies and synergies.