Diageo and Nolet to Form a 50/50 Company for Super-Premium Ketel One Vodka Diageo...

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, Feb. 5 /PRNewswire/ -- Diageo, the
world's leading 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
family owning the other 50%. Due to its rights under the agreements Diageo
will fully consolidate the financial results of the new company, accounting
for the Nolet holding 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
Diageo will become the exclusive distributor of the brand globally.
Ownership of the Nolet distillery in Schiedam in Holland, where they have
been distilling 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
is primarily a North American brand in the super-premium vodka segment and
will complement Diageo's premium Smirnoff and its ultra-premium Ciroc brands.
Similarly outside the United States Ketel One will expand Diageo's brand range
in vodka. The Nolet family and Diageo believe that this new relationship will
accelerate 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
required regulatory approvals and other conditions. Diageo expects that the
transaction will 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
interest in an outstanding high quality brand and fantastic potential for
global growth in 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
drinks company, and look forward to working together with this team of highly
talented people.
The partnership between Nolet and Diageo will combine our brand building
and entrepreneurial skills with the unrivalled brand management, marketing and
distribution expertise of Diageo to fully develop the potential of Ketel One
vodka 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.
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, Weber Shandwick
Huijskens & Istha +1 (818) 612 5217
+31 20 685 5955 jblake@webershandwick.com

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

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
collection of 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 range
of super premium spirit brands including Ketel 1 Jenever and Ketel One vodka.
The business has its origin in Schiedam, the Netherlands from where it
still operates 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-looking statements, 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
of this announcement and attributable to Diageo are expressly qualified in
their entirety by the above factors and the 'risk factors' contained in the
Annual Report on Form 20-F for the year ended 30 June 2007 filed with the
United States Securities 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, wherever situated, should take note of these disclosures.
SOURCE Diageo

Tom Evrard, +1-516-375-0439, Tom.Evrard@Diageo.com