Diageo plc (DEO) to Sell Whyte & Mackay Assets

Leading brewer, Diageo plc (DEO), has offered to divest most of its Whyte & Mackay assets to address concerns of the U.K. regulatory watchdog, Office of Fair Trading (OFT).

U.K.-based brewer, Diageo got control of Whyte & Mackay when it acquired Indian spirits company, United Spirits in 2012. Diageo and United Spirits are the major suppliers of blended whisky to retailers in the U.K. and across the world. In fact, Diageo’s lower-end Bell’s whisky directly competes with Whyte & Mackay’s branded Scotch whiskey. Hence, OFT expressed concerns as several retailers were worried that a merger between Diageo and United Spirits will reduce competition, giving a chance to Diageo to raise prices for bottled blended whiskey in the U.K.

In order to address the concerns of the regulatory authority, Diageo, has offered to sell Whyte & Mackay’s Invergordon, Jura and Fettercairn distilleries while retaining Dalmore and Tamnavulin.

United Spirits bought Whyte & Mackay in 2007 for $1.2 billion. In the U.K., Whyte & Mackay primarily supplies whisky, but owns and distributes other spirits, including vodka, as well.

Diageo is increasing marketing investment in all its geographical segments, and is focusing more on the premium brands. The strategy of transitioning to high-margin high-priced products is helping the company improve its margins.

Currently, Diageo carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include Constellation Brands Inc. (STZ), Omega Protein Corporation (OME) and Synutra International Inc. (SYUT). All these stocks carry a Zacks Rank #1 (Strong Buy).