Diageo buys into Napa wine valley

GUINNESS and Smirnoff vodka maker Diageo is to buy premium US wine group Chalone for some $260m (£130m). The company is paying $14.25 a share for the business, which gives it a number of premium brands in the US wine market.

Diageo already operates in the American wine industry through its Chateau & Estate Wines operation, with brands spanning Beaulieu Vineyard, Sterling Vinyards, Solaris and Blossom Hill.

The Chalone Wine Group is based in the Napa Valley and specialises in premium red and white wines. It also has a 23.5% stake in the Fourth-Growth estate of Chateau Duhart-Milon in Bordeaux, in partnership with Domaines Barons de Rothschild, which owns the 76.5% balance. Diageo said it expects the Chalone purchase to be profitable within three years. The deal is still subject to regulatory approval.

Ivan Menezes, president and chief executive of Diageo North America, said the US wine market represented a significant opportunity for Diageo. He added: 'Our North American wine business, Diageo Chateau & Estate Wines, has proved its ability to develop premium brands and drive value through integrating businesses.'

Last year Diageo's Beaulieu Vineyard and Sterling Vineyards reported growth of 35% and 22%, respectively. Chalone, which shipped some 675,329 cases last year reported net sales in 2003 of $67.4m, earnings of $15.2m and operating income of $7.5m.

Diageo, meanwhile, remains committed to a share buyback programme, which will see it return some £600m to shareholders. This provides some comfort for investors following a downbeat trading update in October, which disappointed the City.

Analysts had been hoping for news of an upturn in the European drinks market but chief executive Paul Walsh said that there had been 'little change' in the drinks giant's financial fortunes since it issued annual results in September.