UK-based Diageo, the world's biggest wine and spirit producer, has announced it has agreed the sale of its fastfood concern Burger King to a consortium composed of Texas Pacific, Bain Capital and Goldman Sachs.

Diageo will receive US$2.26bn in cash for Burger King Corporation (BKC) on a debt free basis. BKC will retain a minimum level of working capital, which will include US$15m of cash.

A portion of the purchase price is dependent upon BKC satisfying certain performance targets in its financial year ended 30 June 2002.

Diageo said in a statement that it anticipates that the cash from the deal will be directed towards reinvestment in its premium drinks business and for return to shareholders.

The tax cost on the disposal is estimated at approximately US$175m.

In March 2002, Diageo commenced a review of options for the separation of BKC as the final step in its realignment behind premium drinks.

Announcing the agreement, Paul Walsh, CEO of Diageo, said: "Today's announcement represents an important milestone in Diageo's journey. In the last two years since we announced our intent to exit food, we have brought together our global spirits, wine and beer businesses, including exciting new assets from Seagram. Now we will focus all our management skills to deliver sustainable top and bottom line growth and create still greater value for our shareholders.

"This transaction provides for the future for BKC, its franchisees, employees and customers. In the past sixteen months Diageo has brought together a new management team for Burger King, recast the strategy and delivered significantly improved performance across the business."

Stuart Price beverage analyst with WestLB Panmure said: "While the [Diageo] share price should see some relief today, we believe that BK could have attracted a higher price  - especially given that we believe that Texas Pacific will eventually seek to securitise the royalty income within Burger King. This means that there is probably an opportunity cost element in the price - ie, that associated with weak stock market conditions."

He continued: "Diageo's challenge is now to either return the cash to shareholders and/or invest in wine assets. This comes with a high reinvestment risk."