Diageo Signs Sale, Leaseback Wine Deal In US

24th Jun 2010 13:53

LONDON (Dow Jones)--Global drinks giant Diageo PLC (DGE.LN) said Thursday that it has signed a sale and leaseback deal involving some of its land and facilities in Napa Valley, California, valued at approximately $260 million, part of the global drinks firm's ongoing review of its wine operations. The assets will be purchased and leased back to Diageo by Realty Income Corp. under a 20 year lease, with Diageo holding options to extend the lease for up to 80 years in total. Diageo Chateau and Estate wines remains the operator of the properties under the lease agreement and retains ownership of the brands, vines and grapes, which remain a strategic part of Diageo's wine business. The deal, which is expected to be wrapped up by the end of June, is part of the previously announced review of the operations of DC&E, which resulted in a reduction in the workforce and may also include the sale of non-strategic brands. The impact of the restructuring, including the sale and leaseback, for the year ending June 30, 2010 "will be broadly neutral as the profit on the sale of land is broadly offset by restructuring costs, inventory impairment and provisions made against the disposal of non-strategic brands," U.K.-based Diageo said in a statement. The benefit to free cash flow for fiscal 2010 is expected to be in the region of $200 million, and the transaction will also improve the return on invested capital of the wine business. In addition to wine, Diageo produces Johnnie Walker scotch whiskey, Guinness stout and Smirnoff vodka. At 1247 GMT, Diageo shares were down 3 pence, or 0.3%, at 1085 pence, valuing the company at GBP27.17 billion, in a lower London market. -By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; [email protected] (END) Dow Jones Newswires June 24, 2010 08:53 ET (12:53 GMT)