020238 Diageo to Close Book on Burger King

London - The world's biggest drinks group, Diageo Plc, is set in the next few weeks to finalise plans for the sale of its Burger King fast food chain and Malibu rum brand, closing a dramatic chapter in the firm's history.

Industry sources said Diageo would outline plans for a management buyout of Burger King and name the winner of its Malibu auction, which is being held to pave the way for Diageo's recent part-purchase of the Seagram drinks empire.

Burger King Chairman and Chief Executive John Dasburg is likely to give some details of his 1.6 billion pound ($2.29 billion) buyout plan for the Miami-based hamburger chain later this month as Diageo goes for a trade sale rather than a float.

Dasburg is delaying a strategy meeting until February 27 to outline how he is turning the business around; introduce his new management team; and launch new products in the United States. He had pencilled in February 20 for the meeting, but it will now be after Diageo's group half-year results on February 21.

Meanwhile, French group Pernod Ricard is leading the race ahead of Allied Domecq and Brown-Forman in the 650-million-pound auction of its coconut-rum drink Malibu, which Diageo is being forced to sell off. Dasburg, the former U.S. airline executive who took over at Burger King last February, has been pushing Diageo to sell as a better way forward than a flotation which Diageo had envisaged when it decided to separate the business back in June 2000.

He is likely to give some strong clues at the meeting on his plans to buy the group in partnership with private equity group Texas Pacific, and a deal is likely to be concluded within the next six months, the sources said.

BURGER KING: FOOD FOR THOUGHT

Diageo is set to come under close questioning at its results next week on Burger King, but is likely to stress its previous line that it is committed to separation but has not decided on the method -- either sell-off or float.

Dasburg's buyout plans took a knock when the chain reported flat sales for October, after a three-percent pickup in September. Overall, four-month July- October sales were flat and investors will be watching Diageo's results to detect any pick up in trading during November and December.

Diageo has warned Burger King's operating profits will be hit by Dasburg's investment in new marketing initiatives and the move to separate the unit as Diageo focuses on worldwide drinks such as Johnnie Walker whisky, Smirnoff vodka and Guinness beer.

Diageo is also nearing a decision to sell off Malibu to Pernod, after U.S. Federal Trade Commission gave it until June this year to conclude a sale. Allied Domecq is also in the running, but interest from Brown-Forman is thought to be fading.

A joint Diageo and Pernod $8.15 billion deal to buy Vivendi Universal's Seagram drinks empire was cleared by the FTC last December, on condition that Diageo would sell Malibu because of competition fears in the U.S. rum market.

Industry sources said the FTC will want to be convinced that Diageo and Pernod have not agreed a “cosy” deal over Malibu, after the two have worked together since September 2000 on their joint Seagram deal.

The FTC is forcing Diageo to sell Malibu within six months as there were fears that Diageo -- which gains Captain Morgan rum from the Seagram portfolio -- and privately-owned Bacardi would dominate the U.S. rum market.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com