US regulator turns spotlight on Diageo

Diageo confirmed that the Securities and Exchange Commission (SEC) had made inquiries regarding its distribution in America.

“Diageo is working to respond fully to the SEC’s requests for information in this matter,” a spokeswoman for the company said last night.

The SEC is said to be investigating the shipping of excess inventory to distributors, which would enable a company to report increased sales and shipments, The Wall Street Journal reported. The SEC declined to comment.

The Times reports that the company’s US-listed shares, or American depository receipts, fell 4 per cent to $114.90 in New York after news of the inquiry broke yesterday.

North America is by far the largest market for Diageo and accounts for 45 per cent of operating profits.

Ivan Menezes, the chief executive, has been under pressure to reverse declining sales. He surprised the market this month by moving the distiller’s chief financial officer, Deirdre Mahlan, to fill the key post of president of the North American business.

Ms Mahlan will take over from Larry Schwartz, who announced he would be retiring at the end of the year after a 40-year career in the drinks industry.

The move was seen as tacit admission that North America needed a firmer hand to tackle the impact of discounting in the vodka and rum markets and competition from nimbler and more innovative rivals.

Mr Menezes also has been exploring potential offers for parts of Diageo’s wine business and is understood to have received interest from several unnamed parties keen to take control of brands within the division, which makes Piat d’Or, Blossom Hill and Chalone.

Last year Diageo faced volatility in key emerging markets, and like a number of drinks companies, has been hit by a crackdown by the Chinese government on spending and entertainment by local officials.

Diageo shares, which were trading as high as £21.40 in 2010, fell as low as £17.09 in October last year.

Since then the shares — which were boosted in June by talk of a takeover by Brazil’s richest man, Jorge Paulo Lemann — have risen around 6.5 per cent and closed at £19.08 in London yesterday.

Diageo was formed in 1997 by the merger of Grand Metropolitan and Guinness, which owned Distillers, Scotland’s largest whisky group.