Diageo pursues tequila, drops whiskey
Global alcoholic beverages giant Diageo has announced an agreement with distiller Casa Cuervo to acquire full global ownership and control of tequila brand Tequila Don Julio.
In return, Diageo has reached an agreement to sell Bushmills to Jose Cuervo Overseas. The transaction will result in a net payment of $408 million to Diageo upon completion, which is expected in early 2015 subject to certain approvals.
The deal will also see the early termination of Casa Cuervo’s production and distribution agreement for Smirnoff in Mexico.
‘This transaction delivers two key objectives for us,” said Ivan Menezes, Diageo’s Chief Executive. “We have secured our position in the growing super and ultra-premium segments of the tequila category and further strengthened our global footprint by expanding our leading position in Mexico where the growth of spirits has great potential,” he said.
The transaction is expected to be economic profit break-even in year 3 assuming a WACC rate of 9 per cent. Assuming completion of the transaction in early calendar 2015 and the use of the net proceeds to reduce debt at Diageo’s average rate of interest, the transaction will dilute eps by 0.6 per cent in the year ending 30 June 2015.
“Diageo has realised this opportunity through the breadth and depth of our portfolio. It delivers our strategy: to build our presence in the world’s fastest growing markets and lead the industry in the biggest growth opportunities,” Mr Menezes said. “I am delighted we have reached this agreement,” he said.
Details of the component parts of the transaction are confidential. Smirnoff volume and net sales in Mexico in the year ended 30 June 2014 were 285,000 cases and £9 million respectively. Bushmills volume and net sales in the same period were 800,000 cases and £57 million. Tequila Don Julio had volume and net sales of 590,000 cases and £105 million, of which Diageo accounted for 345,000 cases and £75 million net sales, in the year ended 30 June 2014.