Another 1 Million-Pound Sell Signal for Diageo

LONDON -- Paul Walsh, CEO of alcoholic drinks giant Diageo  (LSE: DGE  )   (NYSE: DEO  ) , is one of the longest-serving -- and most successful -- FTSE 100 chief executives. He was appointed in 2000, having previously been the group's chief operating officer.

There have been rumours, on and off, that Walsh could be ready to move on to pastures new. Are the stars finally aligning for his departure?

City sources say
In October 2011, The Sunday Times claimed it had learned from "City sources" that Walsh -- a non-executive director at Unilever and FedEx in addition to his executive role at Diageo -- had become Unilever's leading "internal candidate" to take over from 68-year-old chairman Michael Treschow when he stepped down.

However, the newspaper also said, citing the same "senior sources," that Treschow "is likely to stay for at least two more years."

City chatter has continued to bubble along: "Walsh has taken Diageo as far as he can"; "Walsh is ready for a new challenge"; "Walsh wants to concentrate on his non-executive directorships" (he took on a further non-exec role at AIM-listed satellite operator Avanti Communications, in January 2012); and so on.

The COO to CEO journey
The promotion of Ivan Menezes, president of Diageo North America, to a new role of chief operating officer from March 2012 added to the intrigue. Walsh himself had been named COO in January 2000 prior to taking over as CEO in September that year.

On the appointment of Menezes, Charlie Mills, an analyst at Diageo's house broker, Credit Suisse, told Reuters:

Though no timeframe is given or implied, we assume this means a 12-18 month opportunity to assess the internal candidate before he is presumably benchmarked against external candidates for the top job ... some time next year.

Curiously, the house broker's timeframe for Menezes to graduate to the CEO position at Diageo fits pretty neatly with what the sources cited by The Sunday Times back in 2011 reckoned might be a ripe time for Unilever's chairman to step down and be replaced by Walsh.

We're talking the second half of 2013 or perhaps into 2014 if Walsh sees his three-year drive to increase Diageo's sales, margins and earnings through to completion.

Exiting on a high
Walsh has been selling his Diageo shares by the bucketful since the appointment of Menezes as COO. The table below shows his biggest trades -- all of them sales.

Date of sale Share Price (in pence) No. of Shares Value (in pounds)
15 February 2013 1,935 75,000 1,451,250
22 November 2012 1,850 20,000 370,000
12 November 2012 1,801 50,000 900,500
26 September 2012 1,747 164,717 2,877,606
9 March 2012 1,537 50,000 768,500

Walsh still holds 654,614 Diageo shares, but his recent 1.45 million-pound disposal means he has now reduced his personal holding in the company by more than a third in less than a year.

The sell-off could be part of the alignment of the stars for Walsh's departure from a company he's built into the world's leading premium drinks business. Alternatively, he might just feel the stock is a bit overpriced! The current trailing price-to-earnings ratio is around 20 with the shares changing hands for 1,962 pence.

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