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Diageo turns to insider to replace CEO Walsh

A signage is seen on the outside of Diageo offices in west London October 10, 2008. REUTERS/Toby Melville
A signage is seen on the outside of Diageo offices in west London October 10, 2008. REUTERS/Toby Melville

By Rosalba O'Brien

LONDON (Reuters) - Diageo reshuffled its management on Tuesday, with a company insider becoming the boss of the world's biggest spirits firm, suggesting there will be no significant change in strategy.

Chief Operating Officer Ivan Menezes will replace Paul Walsh, who is stepping down after 13 years, the maker of Johnnie Walker whisky and Tanqueray gin said.

The value of Diageo has tripled under Walsh but the firm has struggled recently in some of its attempts to make acquisitions in emerging markets.

Menezes has a background in India and the United States, and this may help to underline the global credentials of the London-listed firm.

Analysts had been expecting the move after Menezes, formerly the head of Diageo North America, was made COO last year.

"We would not expect any significant change to strategy and see this as the natural 'next step' in Diageo leadership," said Jefferies analyst Dirk Van Vlaanderen.

"Ivan is a known quantity and has done a good job managing Diageo's largest and most profitable business segment."

Faced with sluggish demand in recession-hit European economies, Diageo - like many of its peers in the consumer goods market - has been snapping up brands in emerging markets, where it aims to make around half of its turnover by 2015.

However, the going has not always been smooth.

It agreed in November to buy a controlling 53.4 percent stake of India's biggest liquor maker United Spirits under a two-stage process. The completion of the acquisition is yet to happen, slowed by regulatory approvals, while the second-stage open offer is unlikely to succeed and Diageo is expected to end up with around 30 percent of the firm.

In December, long-running talks to buy a stake in tequila brand Jose Cuervo collapsed.

But emerging markets are seen as key for the firm, which formed in 1997 when Grand Metropolitan merged with Guinness, and houses brands such as Guinness and J&B whisky that date from the eighteenth century.

In its latest trading update last month, it reported sales growth of 5 percent for the nine months to end-March, with a 4 percent decline in Western Europe dragging on growth elsewhere.

Diageo's shares have nearly tripled under Walsh's reign, and have risen around 30 percent over the last year alone. They trade at 17.5 times expected earnings, equal to Pernod Ricard , the world's number two spirits group.

"The handover is being made at a time when the business is strong and Ivan takes on the role of CEO at an exciting stage of the company's global development," Diageo Chairman Franz Humer said.

The 57-year-old Walsh had not yet decided what his next move would be, a Diageo spokeswoman said.

Walsh has a number of corporate non-executive positions, as well as roles in the British government's departments of business and energy.

He will remain with the company over the next year to focus on moving "critical partner relationships", Diageo said.

Shares in Diageo were flat at 0803 GMT, in line with the wider FTSE-100 index.

(Editing by Kate Holton and Anna Willard)

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