Diageo (NYSE: DEO), the world's leading premium drinks company, announces that it has successfully completed the disposal to General Mills of the worldwide operations of Pillsbury in a transaction valued at $10.4 billion.

The transaction, originally valued at $10.5 billion, was announced on July 17, 2000. Diageo and General Mills have agreed to amend the original terms of the transaction to reflect changes, which have occurred since announcement.

In summary, the revised transaction value comprises:
  • 134 million newly issued shares of General Mills constituting approximately 32% of General Mills' enlarged issued share capital and valued at $44 per share representing $5,896 million
  • $3,830 million of cash and assumed debt
  • $670 million contingent value right (CVR). Diageo will receive some or all of the CVR at the eighteen month anniversary of completion to the extent that the average General Mills share price is lower than $49 over the 20 trading day period prior to the eighteen month anniversary of completion. The maximum payment of $670 million will be made if the average share price over that same period is at or below $44. The amount paid will also be dependent on the number of General Mills shares Diageo holds at the eighteen month anniversary.

The transaction gives rise to a pro-forma exceptional gain of approximately (pound)400 million before transaction costs and tax and after charging goodwill previously written off of (pound)1.5 billion, based on current US dollar exchange rates.

Diageo has negotiated an option to sell 55 million of its General Mills shares back to General Mills within the next six days at a price of $42.14 per share, which represents a 6% discount to the closing price on Friday, October 26, 2001. Diageo intends to exercise this option. The General Mills share price has appreciated over the period since the transaction was announced and Diageo now wishes to have the ability to sell some of its shareholding in General Mills. The option which Diageo now has represents an attractive way to do this.

Diageo is committed to return capital to shareholders when circumstances are appropriate and the sale of shares to General Mills at this time increases Diageo's capacity to do so.

Following completion of the transaction, Diageo will be able to participate in the enhanced growth, cost synergies and shareholder value benefits which are understood to accrue to the new General Mills. In the longer term, consistent with its focus on premium drinks, Diageo will consider further reductions in its holding in General Mills. However, such reductions will only be made when they are also in line with Diageo's shareholder value principles and in full collaboration with General Mills.

As a result of additional tax planning and structural rearrangements Diageo's estimated tax liability for the disposal of Pillsbury is now considerably lower at $300 million.

Commenting on the announcement, Paul Walsh, Group Chief Executive of Diageo, said:

"This is an important milestone for all those involved. Bringing together Pillsbury with General Mills offers the combined company a richly exciting future.

"For Diageo this marks the moment when we can become more sharply focused on premium drinks. We believe that this focus gives us excellent top and bottom line growth prospects and will position us to deliver outstanding value to our shareholders."

Notes

In the announcement of the transaction, made on July 17, 2000, values were based on the $38 average closing General Mills share price on the New York Stock Exchange over the previous month.

Values throughout this announcement are based on the $44 average General Mills closing share price on the New York Stock Exchange over the past month.

Advisors

Diageo's financial advisors are UBS Warburg and Greenhill & Co., with Sullivan and Cromwell acting as US legal counsel and Slaughter and May as English legal counsel.

UBS Warburg, a business group of UBS AG, which is regulated in the United Kingdom by the Securities and Futures Authority Limited, is acting for Diageo plc and no one else in connection with the combination of Pillsbury and General Mills and will not be responsible to anyone other than Diageo plc for providing the protections afforded to customers of UBS Warburg or for giving advice in relation to the combination.

Greenhill and Co., which is regulated in the United Kingdom by the Securities and Futures Authority Limited, is acting for Diageo plc and no one else in connection with the combination of Pillsbury and General Mills and will not be responsible to anyone other than Diageo plc for providing the protections afforded to customers of Greenhill & Co. or for giving advice in relation to the combination.

Forward-looking and Cautionary Statements

This press release contains forward-looking statements based on management's current expectations and assumptions. Such statements are subject to certain risks and uncertainties that could cause actual results to differ. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.

Diageo is the world's leading premium drinks business. Formed in December 1997 by the merger of GrandMet and Guinness, Diageo has an unrivalled portfolio of brands including Smirnoff, Johnnie Walker, Tanqueray, Guinness, J&B, Baileys, Cuervo and Malibu.

In a strategic move to drive organic growth, Diageo is realigning itself behind its premium drinks business, Guinness UDV. To do this, Diageo is exiting its food businesses--the quick service restaurant company Burger King (announced June 2000) and its Pillsbury packaged food business (announced July 2000).

Diageo is a global company, trading in over 180 markets around the world. The company is listed both on the London Stock Exchange (DGE) and on the New York Stock Exchange (DEO). For more information about Diageo, its brands, people and performance, visit us at www.diageo.com.