Thursday 27 October 2016

Diageo plans Gleneagles sale as it seeks to fine tune its business focus

Thomas Buckley

Published 02/07/2015 | 02:30

Rory McIlroy tees off at the 2014 Ryder Cup in Gleneagles. Diageo are selling the five star hotel and resort
Rory McIlroy tees off at the 2014 Ryder Cup in Gleneagles. Diageo are selling the five star hotel and resort

Diageo Plc sold the Gleneagles Hotel, home of the 2014 Ryder Cup, to a group led by private-equity firm Ennismore Capital as it focuses on selling spirits.

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The 91-year-old hotel "is not a core business," the London-based distiller said in a statement Wednesday. Financial terms were not disclosed.

"It's a sensible bit of tidying up," said Wyn Ellis, an analyst at Numis Securities. Diageo can reinvest the proceeds from a sale elsewhere, Ellis said, noting that the company's main priorities are returning its U.S. division to growth and reducing excess inventory held by wholesalers.

Gleneagles, a luxury resort and golf venue in the county of Perth, Scotland, was acquired by Diageo in 1984 and has been a target for divestment since 1998, according to "The Times" of London newspaper. In 2001, Diageo rejected an informal £90m (€114m) offer for the property, it said.

Gleneagles has long been part of the top tier of hotels in the UK, especially for large resort style properties.

In addition to last year's Ryder Cup, the hotel is the venue for Diageo's annual Johnnie Walker Championship golf tournament and has hosted political gatherings including the Bilderberg Conference and the G8 summit.

The hotel had operating profit of £2.6m and sales of £43.5m in the 12 months through June 2014.

"Following the success of the Ryder Cup we feel this is an appropriate time to realize value," Diageo chief executive officer Ivan Menezes said in the statement.

Another possible candidate for divestment is the company's wine business. Diageo said this year it has reviewed expressions of interest for the unit, which includes Blossom Hill and Yellow Tail.

"A sale of the wine business is undoubtedly a possibility," Numis's Ellis said. "There's a bit of tidying up left to do in the portfolio."

Elsewhere in Europe, Commerzbank sold €2.9bn of commercial real estate loans to Oaktree Capital and JPMorgan Chase, making headway with its plan to reduce riskier assets.

Germany's second-biggest bank ceded €700m of distressed German debt to Oaktree, a US-based alternative investment firm, the Frankfurt-based lender said in a statement on Wednesday.

It also sold €2.2bn of mixed non-performing and performing loans backed by European assets to a group controlled by JPMorgan and Lone Star Funds. It sold the assets at a 3pc discount, it said.

While the bank expects the sale to reduce earnings by €65m euros in the second quarter and €20m euros in the third quarter, respectively, it will release €105m of capital, bolstering the bank's core capital. German lenders are cutting exposure to riskier assets as they shore up their balance sheets before global rules designed to prevent a rerun of the 2008 financial crisis, known as Basel III, take full effect.

"We are significantly reducing both risk and complexity," said Sascha Klaus, divisional board member for non-core commercial real estate assets.

"In this respect we are taking advantage of market opportunities, in order to achieve best possible results through competitive bidding procedures," Mr Klaus added.

Commerzbank's exposure at default in shipping and commercial real estate stood at 30 billion euros as of March 31, it said in the statement.

The sale of the loan books reduces the volume of non-performing commercial real estate loans by €1.3bn, down from €3bn at the end of March, it said.

Banks across Europe have been deleveraging since the crash. (Bloomberg)

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