Diageo's Paul Walsh can drink to the health of his company

Diageo's Paul Walsh can drink to the health of his company

"As in any sector there are strong players and weak players and the weak will suffer. These times will create winners. Those who can seize the right opportunity will do well, and we intend to be one of them."

Diageo's Paul Walsh: "I could do a deal next week, but I'm a great believer that you pick your moment. There is lots of stuff out there but you have to be selective' Photo: Newscast

By Jonathan Sibun 6:00AM GMT 11 Feb 2011

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It was December 2008 and the message from Paul Walsh, the chief executive of drinks giant Diageo, could not have been more clear. The global downturn would claim its victims and Diageo would be waiting to pounce. Fast-forward more than two years and shareholders are still waiting.

The maker of Smirnoff vodka and Johnnie Walker whisky on Thursday published results that will do little to rid shareholders of any frustration. Organic sales growth of 4pc was respectable, albeit missing analyst expectations, but they only gave weight to Diageo's growing reputation as the Mr Dependable of the drinks world. An income stock to trust in.

Meanwhile, Walsh has had to watch Pernod Ricard snap up brands including Absolut vodka, helping its close rival post organic sales growth of 10pc at the last count.

Walsh denies any frustration. "I could do a deal next week, but I'm a great believer that you pick your moment. There is lots of stuff out there but you have to be selective," he says. "As far as Pernod is concerned – think what they paid for Absolut. It gave them a fillip, but for a hell of a lot of money."

However, while few expect Diageo to adopt Pernod's aggressive approach, there is a growing view that the UK company could soon break its abstemious spell. Walsh is thought keen to seal his now 10-year legacy at Diageo's helm, while senior appointments – including that of new finance director Deirdre Mahlan – are likely to lead to a more acquisitive stance.

The latest round of drinks industry consolidation is expected to hit this year and Walsh – who says there is no reason to consider a sale of Guinness – is set to play the part of acquisitor. The break-up of Jim Beam owner Fortune Brands and the likely sale of raki maker Mey Icki in Turkey have caught Walsh's attention, while hopes are growing that Diageo's pursuit of long-term target Moët Hennesy could also come to fruition, albeit further down the line. The future of the UK group's other established target, family-owned Jose Cuervo tequila, is more difficult to gauge, while the chances of a tie-up with Heineken appear slim.

"On Moët Hennesy and Cuervo, it's out of our hands. Transformational deals are down to opportunity. If those opportunities are presented to us, given our balance sheet we're in a very good place to consider them," Walsh says, but on Fortune and Mey Icki the message is more promising.

"We would look at everything," he says, but suggests that any deal to acquire Fortune would come with its own competition issues. "There aren't many gaps in our portfolio."

Being forced to divest some of Fortune's top brands – such as Courvoisier cognac or Laphroaig whisky – would involve a more complicated deal structure but sources argue it would be unlikely to put Diageo off. Bacardi could be among those likely to take any divested brands, although it would be likely to avoid any joint-takeover bid.

Mey Icki, owned by private equity group TPG, is another candidate. TPG has hired advisers to work on a potential sale or flotation of the raki maker and Diageo is exploring its options. Walsh won't be drawn directly on his interest, but the message is clear.

"Turkey is a dynamic market and the brand has got a wonderful position. The company has a strong distribution system in place and it's very well managed. This is a quality asset in an exciting market."

The outcome, Walsh suggests, will come down to equity investors' potential interest in a flotation versus the price that could be garnered via a trade sale. "They [TPG] may have views on value and want to explore IPO opportunities first."

Trevor Stirling, an analyst with Bernstein, believes the path is now clearer for Diageo than it has been for some time. "In recent years they have been precluded from a number of deals on either competition or price. Fortune and Mey Icki are doable from a competition point of view – that's what's different this time."

Mr Dependable looks set to go for something a little stronger.

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Telegraph.co.uk