5 Min Read
* Indian-born COO Menezes replaces Walsh after 13 years
* Diageo seeks further emerging markets expansion
* Shares flat as investors see strategy continuing
By Rosalba O'Brien and Sinead Cruise
LONDON, May 7 (Reuters) - Diageo named Ivan Menezes as chief executive on Tuesday, turning to an Indian-born company insider whose role in the British drinks firm's push into emerging markets points to where it sees its future.
Chief Operating Officer Menezes, 53, replaces Paul Walsh, who is stepping down after 13 years, the maker of Johnnie Walker whisky said in an announcement that surprised few investors, even if the timing of Walsh's exit had not been certain.
The value of Diageo has tripled under Walsh and grew by around 30 percent over the last year alone, as the world's biggest spirits group has sucked up acquisitions in markets such as Brazil, India and Turkey.
But its shares barely reacted to his departure; those close to the firm, which also sells Tanqueray gin, Guinness beer and Smirnoff vodka, said much of the move to emerging markets that is welcomed by investors has been driven by Menezes and others, including American chief financial officer Deirdre Mahlan.
"Paul was burned in the emerging markets crisis in the late 1990s so he was very anti those markets," said a British equities manager with Diageo shares in his portfolio.
"He didn't see the point in buying local spirits businesses - even though they offered perfect distribution platforms for his branded products. He changed his mind latterly, but he never quite grasped that fast enough."
Faced with sluggish demand in recession-hit Europe, Diageo - like many of its consumer goods peers - has been expanding in emerging markets, where it aims to make around half of its turnover by 2015, compared to a current 42 percent.
Menezes' background - born in India, he graduated from Delhi University before an MBA at the Kellogg School near Chicago - may underline the global credentials of London-based Diageo.
"Ivan takes on the role of CEO at an exciting stage of the company's global development," said chairman Franz Humer.
Menezes as COO was key in Diageo's two-stage purchase of a stake in India's biggest liquor maker United Spirits.
Although the deal, announced in November, has been dogged by regulatory delays and a second-stage open offer is unlikely to succeed, Diageo is expected to content itself with a stake of about 30 percent along with management control.
Investors are also waiting to hear Diageo's plans for its U.S.-focused tequila business following the collapse in December of talks to buy a stake in Mexico's Jose Cuervo, whose brand the group distributes under licence.
The naming of Menezes, who ran Diageo North America for eight years, was less than a surprise after he had been elevated a year ago to COO. One investor among the biggest 20 of Diageo's shareholders said there had been a number of internal contenders and there was "nothing controversial at all" about the choice.
The timing of Walsh's departure was the only unknown quantity, said Jefferies analyst Dirk Van Vlaanderen: "We would not expect any significant change to strategy and see this as the natural 'next step' in Diageo leadership," he said.
"Ivan is a known quantity and has done a good job managing Diageo's largest and most profitable business segment."
Menezes has been with the company since 1997, when it was formed in a merger between Britain's Grand Metropolitan and Guinness. Among its brands it counts some venerable names, including J&B whisky, dating from the 18th century.
The company trades at 17.5 times expected earnings, equal to France's Pernod Ricard, the number two spirits group.
Walsh had not yet decided what his next move would be, a Diageo spokeswoman said; one shareholder said he thought Walsh, who at 57 is still some way from typical executive retirement age, had "big aspirations to become chairman somewhere".
He holds a number of non-executive positions, as well as roles in the British government's departments of business and energy. Walsh will remain with the company over the next year to ensure a smooth handover to Menezes of key relationships, including those essential to recent acquisitions, Diageo said.
Its shares were flat near the London close, a little softer than the wider FTSE-100 index, which gained 0.4 percent.