Agenda

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Agenda

• History of Guinness
• History of GrandMet
• Global Expansion
• Benefits of Globalization
• Future Outlook

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History of GuinnessTimeline
1759
1769
1803
1833
1869
1886
1932
1996

• 1759Arthur Guinness takes over a small disused
  brewery in Dublin, and leases it for 9000 years
  at an annual rent of (pounds)45 per year!
• 1769 First overseas export. 54 barrels of
  Guinness porter (stout) are shipped to England.
• 1803First export to the West Indies.

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History of GuinnessTimeline
1759
1769
1803
1833
1869
1886
1932
1996

• 1833Arthur Guinness's brewery, at St. James's
  Gate, is officially the largest in Ireland.
• 1869The first Guinness franchise for Australia
  is opened in Melbourne.

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History of GuinnessTimeline
1759
1769
1803
1833
1869
1886
1932
1996

• 1886 Guinness becomes first brewery to be
  floated on the London Stock Exchange. The Dublin
  Brewery has become the largest in the world.
• 1932Building commenced on the first overseas
  Guinness brewery in West London.
• 1996Guinness introduced in China

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Agenda

• History of Guinness
• History of GrandMet
• Global Expansion
• Benefits of Globalization
• Future Outlook

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History of GrandMetTimeline
1934
1962
1969
1970
1996

• 1934company originated with a hotel business
  called MRMA Ltd
• 1962 becomes Grand Metropolitan Hotels Ltd.
• 1969moved into the industrial catering business
  it acquired Express Dairy Ltd

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History of GrandMetTimeline
1934
1962
1969
1970
1996
1972
1989

• 1970acquires another hotel chain, Berni Inns Ltd
  
• 1972purchase of MNE Mecca Ltd and the brewery
  companies, Truman, Hanbury and Buxton Ltd and
  Watney Mann Ltd.
• 1989GrandMet acquires Pillsbury and Burger King

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Agenda

• History of Guinness
• History of GrandMet
• Global Expansion
• Benefits of Globalization
• Future Outlook

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Global ExpansionMerger

• During the 1990s both GrandMet and Guinness
  determined that consolidation in the world
  spirits industry was inevitable. Both companies
  started to look at the options.
• Guinness had total sales, for all products, of
  about 8 billion in 1996.
• Grand Met had total sales, for all products, of
  about 14 billion in 1996.
• value of proposed merger, measured by the
  aggregate market capitalization, was
  approximately 36 billion.

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Global ExpansionMerger Motivations Market
Drivers

• Guinness was well established in Asia and Latin
  America
• Grandmets drink business was strong in central
  Europe, and it also had a North American presence
  with its food businesses, Burger King and
  Pillsbury

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Global ExpansionMerger Motivations Market
Drivers

• The two companies relevant markets are highly
  concentrated. The merger would substantially
  increase that concentration.
• Dominant market power
• Together, they would control approximately 92 of
  all United States premium Scotch sales.
• Together, they would control approximately 73 of
  all United States premium gin sales

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Global ExpansionMerger Motivations Cost Drivers

• Merger would create the seventh largest food and
  drink company in the world, creating huge
  benefits from economies of scale
• Combined core competencies would create a
  stronger, more efficient organization

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Global ExpansionMerger Motivations Competitive
Drivers

• Their spirits brands were complementary
• Guinness had sucessful whisky and gin brands,
  GrandMet had successful Vodka and liquers
• Merger would eliminate competition between
  Guinness and GrandMet
• First-mover advantage

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Global ExpansionMerger Motivations Government
Drivers

• Reduction of tariff barriers (e.g. NAFTA).
• Reduction of nontariff barriers (e.g. China
  gradually opening its markets).
• Bigger role of world trade institutions (e.g.
  WTO).

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Global ExpansionMerger Motivations

• Both companies came to the conclusion that a
  merger with each other was the best option
• A hostile takeover was not the way to go it
  would destroy 6 billion in shareholder value

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Global ExpansionMerger Motivations

• The merger would create a major new multinational
  force in branded food and drinks, and provide a
  breakthrough in the world spirits business
• Merged business would have greater geographic
  reach then either company had on its own

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Agenda

• History of Guinness
• History of GrandMet
• Global Expansion
• Benefits of Globalization
• Future Outlook

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DiageoReaping the benefits of globalization

• The world's leading premium drinks business
• Producers of many different kinds of spirits,
  wine and beer
• Global company, with presence in over 185
  countries around the world
• listed on both the London Stock Exchange (DGE)
  and the New York Stock Exchange (DEO).

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DiageoReaping the benefits of globalization

• Formed in December 1997 through the merger of
  GrandMet and Guinness
• Initially they were a broad based consumer goods
  company with food and drinks at their core
• In 2000, Diageo realigned their business strategy
  to focus on premium drinks
• Seagram was added to the Diageo family in
  December 2001

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DiageoReaping the benefits of globalization

• By 2002, the strategic alignment behind premium
  drinks was almost complete
• Their exit from food is complete with the sale of
  the Pillsbury Company and Burger King Corporation
• Diageo is now free to focus on one business, with
  one name and one strategy

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DiageoReaping the benefits of globalization

• 28 billion market capitalization
• 13 billion revenues
• In 2002, Diageo realized 9 growth in net sales
  and 13 growth in operating profit, despite
  difficult economic conditions

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TSR ranking
TSR
Company
Rank
155.2 114.1 70.4 68.8 66.0 65.9 47.1 42.8
30.6 29.5 19.7 4.3
Anheuser-Busch Heineken Nestlé Allied
Domecq Colgate Yum! Brands Diageo Unilever Procter
Gamble Altria Pepsico Carlsberg Heinz McDonald
s Kelloggs Coca-Cola Gillette Campbells
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th
13th 14th 15th 16th 17th 18th
(11.2) (11.8) (14.4) (17.3) (27.6) (50.0)
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DiageoReaping the benefits of globalization

• Diageo has over 150 different brands of whisky,
  beer, cognac, gin, liquers, rum, scotch, tequila,
  vodka, and wine
• They have designated 8 brands as global priority
  brands.
• The 8 priority brands hold the strongest
  positions in the best performing markets and
  account for a significant proportion of Diageos
  operating profit

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DiageoReaping the benefits of globalization

• Global priority brands include
• Johnnie Walker the worlds best selling Scotch
  whisky, at over 10 million cases each year.
• Guinness the worlds leading stout. Diageo ships
  over 11 million cases each year
• Smirnoff worlds best selling premium vodka,
  with over 21 million cases sold each year
• JB sells over six million cases a year, making
  it the number two Scotch whisky in the world.

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DiageoReaping the benefits of globalization

• Global priority brands include
• Baileys the worlds number one cream liqueur,
  selling over five million cases per year
• Cuervo sells over four million cases each year,
  making it the number one tequila in the world.
• Tanqueray the number one premium gin in the US,
  selling nearly two million cases each year.
• Captain Morgan the worlds number two rum,
  selling nearly five million cases per year.

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DiageoReaping the benefits of globalization

• Tuesday 3 December 2002, Diageo celebrated its
  fifth year
• Diageo has 72,000 employees worldwide
• Leadership consists of over 800 people

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Diageo
Diageo has manufacturing facilities in many
countries including

• Canada
• Great Britain
• Ireland
• United States
• Spain
• Italy

• Africa
• Latin America
• Australia
• India
• The Caribbean

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Major Markets
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Major Markets

• North America is Diageos most important market,
  contributing around 35 of operating profit.
• Great Britain is Diageos second most important
  market. Last year it had operating profit growth
  of 30.

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Major Markets

• Ireland is also a major market for Diageo, and
  home to two of our eight global priority brands,
  Guinness and Baileys
• The Guinness Storehouse in Dublin is now the
  number one tourist attraction in the country
• Spain is Diageos fourth largest market

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Key Markets
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Venture Markets
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Operating profit by Market
Venture 14
North America 31
Key 30
Great Britain 12
Spain 5
Ireland 9
1,768m
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5 Years of Diageo The benefits of
internationalization

m
440m
406m
22.9
308m
248m
19.1
18.1
200m
17.5
17.4
14.8
14.8
12.9
12.2
11.7
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Agenda

• History of Guinness
• History of GrandMet
• Global Expansion
• Benefits of Globalization
• Future Outlook

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Future Outlook

• Industry Overview
• Risks Associated With Globalization
• Future Outlook

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Future OutlookIndustry Overview

• Non-cyclical
• Global presence
• Prominent among all income classes

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Future Outlook and ChallengesFirm Specific Risk

• Business Risk
• Forecasting Errors Cash Flow Estimates
• Diageo has consistently met forecasted targets
• Foreign Exchange Risk
• Exposure Levels are relatively low.
• Over 60 of revenue from U.S. Europe
• Operating exposure has recently been a factor
  in South America
• Governance Risk
• Globally, governments receive 43 of all profits
  generated by the alcoholic beverage industry.
• Big revenue factor means big influence on
  Government for Diageo.

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Future Outlook and ChallengesCountry-Specific
risks

• Economic Infrastructure
• - Underdeveloped Regions
• Africa and S.A. (key market)
• Sovereign Credit Risk
• - Example Venezuela (key market)
• Nepotism Corruption
• Example China and Russia (venture market)
• Cultural Differences
• Example Japan (key market)

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Global-Specific Risks

• Terrorism
• MNEs need to actively support the development of
  govt legislation policy.
• Antiglobalization
• Does not pose as a significant risk to the
  alcoholic beverage industry compared to other
  global industries.
• Environmental
• Minimal risk as natural ingredients involved in
  production.
• Water usage is main concern in this area but has
  yet to pose any major concern.

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Major Markets Mainly Firm-Specific Risks
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Key Markets Moderate Degree of Country Specific
Risk
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Venture Markets High overall risk
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DiageoFuture Outlook

• Diageo is currently regarded as the worlds
  leading beverage alcohol business. 
• Strategic realignment behind premium drinks has
  proven itself through realization of expected
  growth and profits.
• Current market dominance sets stage for
  substantial future growth opportunities.

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Diageo
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