Diageo warns on Burger King deal

Diageo, the drinks group behind Smirnoff Ice and Guinness, has warned that its sale of Burger King may fall through after a downturn in trading hit hamburger sales in the US.

At best, Diageo is likely to lower the $2.26bn (£1.4bn) price tag agreed in July when a financial consortium led by the US venture capitalists Texas Pacific signed a deal to purchase the fast-food chain.

Diageo, which is exiting food to focus on its core drinks business, said it was talking to the buying group about "potential revisions" to the agreement. Completion of the deal hinged on Burger King "satisfying certain performance targets".

Last week, in a disappointing trading update, Diageo said aggressive price discounting in the US fast-food industry had hit trading. Wendy's, the number three burger chain behind McDonald's and Burger King, yesterday lowered its earnings forecast on the back of poor sales in October.

Diageo said it was approached on Wednesday by Texas Pacific about renegotiating the deal.Cazenove, Diageo's stockbroker, said there was an 80 per cent chance of the deal going through but added a lower price tag of about $1.88bn was likely. Diageo shares fell 10p to 710p.