Diageo buyback to continue

Diageo, the British company which is the world's largest spirits group, is expected to invest the proceeds of the sale of its Burger King restaurant chain in buying back shares, although the likelihood of further acquisitions in the drinks industry is ever present.

Diageo, created through the merger of the food, drink and restaurant operations of Guinness and Grand Metropolitan, has been gradually turning itself into a group whose sole focus is on drinks. The Pillsbury food division in the US has already been sold to General Mills, and with the disposal of Burger King to a consortium of investors, the group is now able to fully concentrate on its drinks business.

With the Guinness beer brand and some of the world's leading spirits such as Smirnoff vodka, Gordon's gin and Bailey's liqueurs, Diageo is well placed to dominate that market. But it has not been content to sit on its laurels, and while it has actively pursued a share buyback programme to add value for its shareholders, some of its cash has also been spent on expansion.

In addition to the Seagram acquisition, which it completed in partnership with France's Pernod Ricard and which added a number of major brands to its portfolio including Captain Morgan rum, Diageo has also been investing in premium wine brands. This strategy is expected to continue, as the consolidation at the top of the spirits market forces spirits groups to look to wine for future growth.

In fact, both Diageo and Allied Domecq, its chief rival, have been actively increasing their wine holdings, the principal difference between the two being that AD has done so using the proceeds of disposals while Diageo has used other funds for expansion and ploughed all sale proceeds back into share buybacks.