Diageo and Nolet to form a 50/50 company for super-premium Ketel One vodka Diageo to pay $900 million for its equity

LONDON, UK, Feb 05 (MARKET WIRE) --
Diageo and Nolet to form a 50/50 company for super-premium Ketel One vodka

Diageo to pay $900 million for its equity stake

London and Schiedam, The Netherlands (5 February 2008) - Diageo, the
world'sleading premium drinks business, and the Nolet family have agreed to form
a new 50/50 company, which will own the perpetual exclusive global rights to
sell,market and distribute the successful super-premium Ketel One vodka.

Diageo has agreed to pay US$900 million for its 50% equity interest in
the newly formed company, which will be based in the Netherlands with the Nolet
familyowning the other 50%. Due to its rights under the agreements Diageo will
fullyconsolidate the financial results of the new company accounting for the
Noletholding as a minority interest. Profits from the sales, marketing and
distribution operations will be shared broadly equally.

The Nolet family will continue to own the brand rights for Ketel One and
Diageowill become the exclusive distributor of the brand globally.

Ownership of the Nolet distillery in Schiedam in Holland, where they have
beendistilling since 1691 and where Ketel One vodka is manufactured will
remain with the Nolet family. The distillery will supply Ketel One vodka
exclusively and perpetually to the new company at an agreed rate of return.

Currently, Ketel One vodka has an annual volume of 1.9 million cases. It
isprimarily a North American brand in the super-premium vodka segment and
willcomplement Diageo's premium Smirnoff and its ultra-premium Ciroc brands.
Similarly outside the United States Ketel One will expand Diageo's brand
rangein vodka. The Nolet family and Diageo believe that this new relationship
willaccelerate the growth of the brand in the USA and elsewhere in the world.

The transaction is expected to close by 31 March 2008, subject to the
requiredregulatory approvals and other conditions. Diageo expects that the
transactionwill be EPS neutral in the first full financial year after closing
and
will be economic profit positive in year five using a weighted average cost
of capital of 9%.

Both the Nolet family and Diageo consider this alliance to be perpetual.
However,
should either party ever decide to sell its stake in the company, the other
party will have the right to purchase it at a price to be agreed. The Nolet
family has an additional right to put its stake in the company to Diageo in the
4th or 5th year after closing for $900 million plus interest. If Diageo buys the
Nolet family stake, full ownership of the brand will transfer to Diageo.
Diageo can choose not to buy in exchange for a $100 million payment. The
family may then pursue a sale to a third party.

Commenting today, Paul Walsh, Chief Executive, Diageo, said:

'This transaction is strategically important for Diageo, giving us an
interestin an outstanding high quality brand and fantastic potential for global
growthin the super-premium vodka segment.

The new company represents a unique alliance in our industry.

'Diageo brings superior marketing and distribution expertise, together
with a track record of outstanding brand stewardship and the Nolet family
brings a truly great brand, based on a high quality distillation operation
and invaluable knowledge and heritage gained from over 300 years of tradition.

'We feel particularly honoured that the family have chosen Diageo as their
partner in taking Ketel One vodka forward to the next stage of its
development.We look forward to working with the Nolet family and their team.'

Commenting on the transaction, Carel Nolet Sr, said:

'We are proud to be partners with Diageo, the world's leading premium
drinkscompany, and look forward to working together with this team of highly
talented people.

The partnership between Nolet and Diageo will combine our brand building
andentrepreneurial skills with the unrivalled brand management, marketing and
distribution expertise of Diageo to fully develop the potential of Ketel
Onevodka in the USA and globally.'

UBS Investment Bank acted as financial adviser and Sullivan & Cromwell
LLP and Morgan Lewis & Bockius LLP acted as legal advisers to Diageo in
this
transaction.

-ENDS-

For further information

For Diageo Investor Relations
Catherine James Kelly Padgett
+44 (0)20 7927 5272 +1 202 715 1110
catherine.james@diageo.com kelly.Padgett@diageo.com

For Diageo Media Relations
Stephen Doherty Jennifer Crowl
+44 (0)20 7927 5528 +44 (0)20 8978 8647
stephen.doherty@diageo.com jennifer.crowl@diageo.com

Isabelle Thomas Gary Galanis
+44 (0)20 7927 5967 +1 (203) 229 4643
isabelle.Thomas@diageo.com gary.galanis@diageo.com

For Nolet in The Netherlands For Nolet in the US
D. Istha Jennifer Vides Blake,
Huijskens & Istha Weber Shandwick
+31 20 685 5955 +1 (818) 612 5217
jblake@webershandwick.com

For Nolet in London
Terry Garrett, Heather Wilson,
Weber Shandwick Weber Shandwick
+44 (0)20 7067 0717 +1 (310) 722 0198
tgarrett@webershandwick.com hwilson@webershandwick.com

Notes to Editor

About Diageo

Diageo is the world's leading premium drinks business. With its global
vision,and local marketing focus, Diageo brings to consumers an outstanding
collectionof beverage alcohol brands across the spirits, wine and beer
categories including
Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Cuervo, Captain Morgan and
Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines. Diageo trades in
some 180 countries around the world and is listed on both the New York Stock
Exchange (DEO) and the London Stock Exchange (DGE). For more information about
Diageo, its people, brands and performance, visit us at www.diageo.com

About the Nolet Distillery and the Nolet family

Since 1691 the Nolet family, through the Nolet distillery and other group
companies manages the production, distribution, sales and marketing of a
rangeof super premium spirit brands including Ketel 1 Jenever and Ketel One
vodka.

The business has its origin in Schiedam, the Netherlands from where it
stilloperates its distillery. The group focuses on personal relationships with
distributors, bartenders and its consumers that are essential for the
success of the company and its products. In 2007 the company produced ca two
million cases per year with a turnover of around Euro 165 million. The Nolet
family is actively involved with the group under the leadership of 10th
generation Carel Nolet Sr and his son Bob Nolet, both based in Schiedam and his
other son, Carl Nolet Jr, based in California, USA. The group employs around
180 people.

Cautionary statement concerning forward-looking statements

This announcement contains "forward looking statements" within the
meaning of 'Safe Harbor' provisions of the United States Private
Securities Litigation Reform Act of 1995 with respect to the financial
condition,
results of operations and business of Diageo and certain of the plans and
objectives of Diageo with respect to and outlook for these items. In
particular, all statements that express forecasts, expectations and
projections with respect to and outlook for future matters, including trends
in results of operations, margins, growth rates, overall market trends, the
impact of
interest or exchange rates, the availability of financing to Diageo, anticipated
cost savings or synergies and the completion of Diageo's strategic
transactions, are forward-looking statements. Forecasts, expectations and
projections with respect to future financial performance on an earnings per
share and economic profit basis are based on a range of assumptions, including
assumptions with respect to current exchange rate forecasts, the effective
corporate tax rate, trading conditions for Diageo and in markets generally, the
success of integration of any joint ventures or acquired businesses,
competition in and growth of premium drinks markets and assumed GNP growth in
the United States. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors that could cause actual
results and developments to differ materially from those expressed or implied by
these
forward-lookingstatements, including factors that are outside Diageo's control.

These factors include, but are not limited to: increased competitive
product and pricing pressures and unanticipated actions by competitors that
could impact Diageo's market share, increase expenses and hinder growth
potential; the effects of future business combinations, partnerships,
acquisitions or disposals, existing or future, and the ability to realise
expected synergies and /or costs savings; Diageo's ability to complete
existing or future acquisitions and disposals; legal and regulatory
developments,
including changes in regulations regarding consumption of, or advertising
for, beverage alcohol, changes in tax law (including tax rates) or accounting
standards, changes in taxation requirements, such as the impact of excise
tax increases with respect to the business, and changes in environmental laws,
health regulations and the laws governing pensions; developments in
litigation or any similar proceedings directed at the drinks and spirits
industry;
developments in the Colombian litigation and any similar proceedings; changes in
consumer preferences and tastes, demographic trends or perception about
health related issues; changes in the cost of raw materials and labour
costs; changes in economic conditions in countries in which Diageo operates,
including changes in levels of consumer spending; levels of marketing spend,
promotional and innovation expenditure by Diageo and its competitors;
renewal of distribution or licence manufacturing rights on favourable terms when
they
expire; termination of existing distribution or licence manufacturing rights on
agency brands; technological developments that may affect the distribution of
products
or impede Diageo's ability to protect its intellectual property rights; and
changes in financial and equity markets, including significant interest rate and
foreign currency exchange rate fluctuations, which may affect Diageo's access to
or increase the cost of financing or which may affect Diageo's financial
results.

All oral and written forward-looking statements made on or after the date
ofthis announcement and attributable to Diageo are expressly qualified in
theirentirety by the above factors and the 'risk factors' contained in the
AnnualReport on Form 20-F for the year ended 30 June 2007 filed with the United
StatesSecurities and Exchange Commission (SEC). Any forward-looking statements
made by or on behalf of Diageo speak only as of the date they are made.
Diageo does not undertake to update forward-looking statements to reflect any
changes in Diageo's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is based. The
reader
should,however, consult any additional disclosures that Diageo may make in any
documents which it publishes and/or files with the SEC. All readers,
whereversituated, should take note of these disclosures.

-ENDS-

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The company news service from the London Stock Exchange

Copyright 2008, Market Wire, All rights reserved.

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