The world's biggest drinks firm has shunned the chance to buy New Zealand's Montana wines off Pernod Ricard because it will not generate enough growth.
Diageo said it had made the decision after a business review of Montana's prospects for export-led growth, together with margin improvement from premiumisation and innovation.
"The acquisition would not meet Diageo's investment criteria," said Diageo, which agreed an exclusive option to take Montana, excluding the Corban's, Stoneleigh and Church Road brands, off Pernod Ricard's hands following its takeover of Allied Domecq.
Paul Walsh, Diageo's chief executive, said the group recognised the growth of the wine sector and the margin benefits wineries could bring, but "we will add selectively to our wine business, especially within the premium segment."
The group has hardly left money to burn holes in its pockets this year, spending £700m on acquisitions in the first six months, according to the group's new advisors Goldman Sachs.
France's Pernod Ricard, which has now become New Zealand's wine market leader, said it was pleased to keep the "high growth" Montana label.
Diageo had earlier issued a trading statement for its 2006 first quarter, re-iterating spirits categfory growth in North America but testing times in Europe, "with volume down on the prior period and the decline in the ready to drink segment continuing to adversely impact net sales growth".
Organic net sales growth is expected to be around four per cent.
The group, like others, acknowledged the pressure from higher oil costs on operating margins, yet said it expected these to contain the problem.