Diageo agree Burger King sale

Diageo PLC
13 December 2002

                                                                13 December 2002





                     Diageo agrees the sale of Burger King


Diageo plc announces that it has agreed the sale of Burger King Corporation
under revised terms to the buying group composed of Texas Pacific Group (TPG),
Bain Capital Partners and Goldman Sachs Capital Partners. The transaction is
expected to close later today when payment will be received.


Diageo previously announced on 18 November 2002 that the buying group would not
be able to complete the transaction on the terms agreed and announced on 25 July
2002. This was due to the highly competitive trading environment in which Burger
King and other quick service restaurant businesses are currently operating and
the deterioration in the capital markets.


Under the revised agreement:


  • The purchase price is $1.5 billion. The purchase price will be settled in
    part by cash, by $86 million in assumed debt and the balance by means of
    subordinated debt with a principal amount of $212.5 million.


  • The cash portion of the purchase price reflects agreed adjustments for
    working capital and capital expenditure of Burger King and its subsidiaries.
    These variations are subject to the normal post-closing settlements, which
    are not expected to result in material changes to the cash received. Diageo
    is receiving $1.2 billion in cash. However Diageo is obliged to ensure that
    at completion Burger King has $65 million in cash.


  • The post closing capital structure of the Burger King group will include
    $750 million of senior loans provided by external lenders and $425 million
    of subordinated debt provided equally by Diageo and the buying group. The
    senior loans will have a term of 5 years. The subordinated debt will have a
    term of 10 and a half years and carries a non-cash cumulative coupon of 9%,
    which could become cash at the issuers' option.


  • To facilitate the timely completion of this transaction, Diageo is
    guaranteeing the $750 million senior loans and a $100 million revolving
    credit facility at Burger King. However, the arrangements are structured in
    such a way as to encourage the Burger King group to refinance these loans on
    a non-guaranteed basis before their contractual maturity. If refinancing
    does not occur in the first 3 years Diageo will receive thereafter an annual
    guarantee fee of 5% of the outstanding principal amounts of the loans.
    Diageo will make an incentive payment of $10 million if the loans are
    refinanced during the first 18 months following closing or a payment of $5
    million if they are refinanced during the next 18 months. The buying group
    has agreed to use all reasonable commercial efforts to assist in
    refinancing. Diageo will compensate Burger King for any fees and additional
    interest incurred during the outstanding term of the senior loans if those
    refinancing terms are satisfactory to Diageo. If the refinancing were to
    take place after 2 years the cost to Diageo is currently estimated to be
    approximately $55 million. Diageo expects to make provisions in respect of
    its obligations relating to these loans.


  • Diageo will not incur a tax liability as a result of the disposal. In
    addition aspects of the agreed transaction will result in a $100 million
    exceptional tax credit for the six months ended 31 December 2002.


  • The necessary regulatory approvals have already been obtained.




Diageo anticipates that the cash proceeds will be used to pay down debt.




For the year ended 30 June 2001 Burger King's UK GAAP operating profit, before
exceptional items and goodwill amortisation, was $257 million. For the year
ended 30 June 2002 Burger King's UK GAAP operating profit, before exceptional
items and goodwill amortisation, was $230 million. Operating profit, which was
$114 million in the six months ended 31 December 2001, is expected to decline by
approximately 20% in the six months ending 31 December 2002. At 30 June 2002
Burger King's net assets, before inter company balances and net borrowings, were
$2.2 billion. Goodwill previously written off was $1.1 billion.




Announcing the agreement, Paul Walsh, CEO of Diageo, said:


'We are pleased that we have been able to reach this agreement despite a
difficult market and at a time of tough trading conditions for the quick service
restaurant sector. We continued to review our options but concluded that this
transaction with this buying group was the most certain route to achieving
separation. Securing separation represents the best option through which Diageo
can further realise value for its shareholders.


'The sale of Burger King represents an important step for Diageo in delivering
its strategy, laid out in 2000, to focus on its premium drinks business. Since
that time, Diageo has concluded major transactions to realign the strategic
focus of the group, including the sale of Pillsbury to General Mills and the
acquisition, jointly with Pernod Ricard, of the Seagram's spirits and wine
business. Diageo is now well positioned to deliver superior levels of growth and
return on invested capital.'


                                     -Ends-




For further information contact:


Media enquiries:        Kathryn Partridge      [phone]
                                  
[e-mail]


Investor enquiries:     Catherine James        [phone]

[e-mail]




Diageo management will host a teleconference to analysts and investors @9.30am
(GMT) on Friday 13 December 2002. Call this number to listen or ask questions:


From UK/Europe    [phone]

US/Canada         [phone]




The teleconference will be available on instant replay from 12.00pm (GMT) on
Friday 13 December until midnight Tuesday 31 December 2002 .The number to call
is:


           From UK/Europe [phone] Passcode 379882

US/Canada [phone] Passcode 379882




                               Notes to editors:


1. Diageo is the world's leading premium drinks business with an outstanding
collection of beverage alcohol brands across spirits, wine and beer categories.
These brands include: Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo,
Tanqueray, Captain Morgan, and Beaulieu Vineyard and Sterling Vineyards wines.


Diageo is a global company, trading in over 180 markets around the world. The
company is listed on both the London Stock Exchange (DGE) and the New York Stock
Exchange (DEO). For more information about Diageo, its people, brands and
performance, visit us at www.diageo.com


2. Burger King Corporation was founded in 1954 and is headquartered in Miami
Florida. The Burger King system operates restaurants in all 50 states and 55
countries throughout the world. The entire Burger King restaurant system
generated $11.3 billion in sales in over 11, 455 worldwide restaurants in the
year ended 30 June 2002.


3. Forward-looking and cautionary statements. This press release contains
forward-looking statements based on management's current expectations and
assumptions. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ. The company undertakes no obligation to
publicly revise any forward-looking statements to reflect future events or
circumstances. Reference is also made to Diageo's Annual Report 20F and the
'Risk Factors' contained therein for other factors that could impact forward
looking statements.



4. Diageo's financial adviser in the disposal has been Greenhill & Co. UBS
Warburg and Merrill Lynch International have also provided financial advice to
Diageo in relation to the transaction. Sullivan & Cromwell have acted as US
legal counsel and Slaughter and May as English legal advisors.


Greenhill & Co is acting for Diageo plc and no one else in connection with the
sale of Burger King Corporation and will not be responsible to anyone other than
Diageo plc for providing the protections afforded to customers of Greenhill &
Co. or for giving advice in relation to the sale.


UBS Warburg Ltd, a wholly owned subsidiary of UBS AG acting through its business
group UBS Warburg, is acting for Diageo in connection with the sale of Burger
King Corporation and no-one else and will not be responsible to anyone other
than Diageo plc for providing the protection offered to clients of UBS Warburg
Ltd. nor for providing advice in relation to the sale.


Merrill Lynch International is acting for Diageo in connection with the sale of
Burger King Corporation and no-one else and will not be responsible to anyone
other than Diageo plc for providing the protection offered to clients of Merrill
Lynch International nor for providing advice in relation to the sale.


5. Texas Pacific Group (TPG) is a private investment firm that manages a series 
of equity investment funds with more than $7 billion of committed equity   
capital. Over the past decade, TPG has completed more than 50 transactions   
and invested over $4 billion of equity capital. TPG's historical investments   
include Beringer Wine Estates, Continental Airlines, Del Monte Foods, Ducati   
Motorcycles, J. Crew, Oxford Health Plans, Petco and Seagate.


6. Bain Capital Partners (BCP) is a private investment firm that manages a
series of equity investment funds with more than $14 billion of committed equity
capital. Over the past two decades, BCP has completed more than 100
transactions. BCP's historical investments include Domino's, Shoppers Drug and
Brookstone.



7. GS Capital Partners (GS) is the current primary investment vehicle of Goldman
Sachs for making privately negotiated equity investments. The current GS Capital
Partners fund was formed in July 2000 with total committed capital of $5.25
billion, $1.5 billion of which was committed by Goldman Sachs and its employees,
with the remainder committed by institutional and individual investors. Over the
past two decades, GS has completed more than 200 transactions. GS's historical
investments include Polo Ralph Lauren, MONY Life Insurance Company, Cognis and
Koomin Bank.


8. Financing of the transaction was arranged by J.P. Morgan and Citigroup. J.P.
Morgan Securities Inc. and Citibank N.A. acted as advisor to the buying group
consisting of Texas Pacific Group, Bain Capital Partners and Goldman Sachs
Capital Partners













                      This information is provided by RNS
            The company news service from the London Stock Exchange