Diageo announces that it has successfully completed the disposal to General Mills of the worldwide operations of Pillsbury in a transaction valued at $10.4 billion.
The transaction, originally valued at $10.5 billion, was announced on 17 July 2000. Diageo and General Mills have agreed to amend the original terms of the transaction to reflect changes which have occurred since announcement.
In summary, the revised transaction value comprises:
> 134 million newly issued shares of General Mills constituting approximately 32% of General Mills' enlarged issued share capital and valued at $44 per share representing $5,896 million
> $3,830 million of cash and assumed debt
> $670 million contingent value right (CVR). Diageo will receive some or all of the CVR at the eighteen month anniversary of completion to the extent that the average General Mills share price is lower than $49 over the 20 trading day period prior to the eighteen-month anniversary of completion. The maximum payment of $670 million will be made if the average share price over that same period is at or below $44. The amount paid will also be dependent on the number of General Mills shares Diageo holds at the eighteen month anniversary.
The transaction gives rise to a pro-forma exceptional gain of approximately £400 million before transaction costs and tax and after charging goodwill previously written off of £1.5 billion, based on current US dollar exchange rates.
Diageo has negotiated an option to sell 55 million of its General Mills shares back to General Mills within the next six days at a price of $42.14 per share, which represents a 6% discount to the closing price on Friday 26 October 2001. Diageo intends to exercise this option. The General Mills share price has appreciated over the period since the transaction was announced and Diageo now wishes to have the ability to sell some of its shareholding in General Mills. The option which Diageo now has represents an attractive way to do this.
Diageo is committed to return capital to shareholders when circumstances are appropriate and the sale of shares to General Mills at this time increases Diageo’s capacity to do so.
Following completion of the transaction Diageo will be able to participate in the enhanced growth, cost synergies and shareholder value benefits which are understood to accrue to the new General Mills. In the longer term, consistent with its focus on premium drinks, Diageo will consider further reductions in its holding in General Mills. However, such reductions will only be made when they are also in line with Diageo’s shareholder value principles and in full collaboration with General Mills.
As a result of additional tax planning and structural rearrangements Diageo’s estimated tax liability for the disposal of Pillsbury is now considerably lower at $300 million.
Commenting on the announcement, Paul Walsh, Group Chief Executive of Diageo, said:
'This is an important milestone for all those involved. Bringing together Pillsbury with General Mills offers the combined company a richly exciting future.'
'For Diageo this marks the moment when we can become more sharply focused on premium drinks. We believe that this focus gives us excellent top and bottom line growth prospects and will position us to deliver outstanding value to our shareholders.'
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