Business week: High spirits at Diageo

As it prepares to present its annual report to its investors on both sides of the Atlantic on September 5, Diageo is among the 56 UK companies listed on the New York Stock Exchange grappling with the controversial Sarbanes-Oxley Act.

Diageo’s results come as the Securities & Exchange Commission approved the rules to implement Sarbanes-Oxley.

Last Tuesday, the SEC ruled FDs and CEOs must certify the ‘financial information included in the report, in its annual report’.

Despite protests, including those of the British ambassador to the US, directors of UK companies listed on the NYSE are expected to certify reports filed after August 29, 2002.

The drinks company, which owns well-known brands such as Guinness, Bailey’s and Johnny Walker, has been extremely busy this year and in July was optimistic about its results, expecting a profitable top line growth.

Walsh, who was appointed in June, said: ‘Diageo has completed two major transactions, focussed the business on premium drinks and we are delivering consistent performance.’

One of the major transactions Diageo completed was the acquisition of the Seagram businesses along with Pernod Ricard in December 2001 from Vivendi Universal for £5.5bn.

In the transaction, Diageo kept 18 of the brands, and, together with Pernod Ricard, sold four other brands to various buyers.

Last month, the company agreed to pay about $145m (£94.5m) in cash to settle outstanding claims resulting from the Seagram deal.

The settlement related to claims linked with working capital adjustments during the period between June 2000 and December 2001. Vivendi would receive a net total of $127m (£82.8m) but the settlement also included a separate resolution with Pernod Ricard of alleged trade loading claims.

But according to Diageo, the acquisition of Seagram was worth the trouble, as it said the brands had met all expectations and benefited the company in the second half.

And as part of realignment to its premium drinks business, the company also sold other non-core brands.

In the year, Diageo disposed of high-profile brands such as baking business Pillsbury, sold in October 2001, and Burger King, which was sold to Texas Pacific in June for $2.26bn (£1.47bn).

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