In addition to strengthening Diageo’s position in the tequila market, the spirits giant, which owns brands such as Guinness and Johnnie Walker, said it would boost its presence in Mexico. Diageo already held a 50% stake in Don Julio and the decision will see it take over the remaining 50%.
“It feels sad to see Bushmills go,” Phil Carroll, beverages analyst at Shore Capital, told FoodManufacture.co.uk. “But based on the numbers they have given us, on face value it seems a reasonable valuation for Bushmills.”
He said the attraction of the Don Julio brand for Diageo would be its potential in the US market, where there was strong demand for high quality tequila.
The move follows the announcement of Diageo’s acquisition of several small tequila brands, including DéLéon and Peligroso in January this year.
“It plays into its strategy of building a portfolio of high profile tequilas,” said Carroll.
The transaction includes the early termination of Casa Cuervo’s production and distribution agreement for Diageo’s Smirnoff vodka in Mexico.
Fully realised early 2015
Jose Cuervo, which is based in Mexico City, and Diageo expect that the deal will be fully realised in early 2015, subject to the usual regulatory approvals. They forecast that it would begin to generate profit in its third year.
“This transaction delivers two key objectives for us,” said Diageo ceo Ivan Menezes. “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.
“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. I am delighted we have reached this agreement.”
Details of the component parts of the transaction are confidential. In the year ended June 30 2014, Diageo sold 285,000 cases of Smirnoff in Mexico, chalking up value sales of £9M.
Over the same period, it sold 800,000 cases of Bushmills, generating £57M. At the same time, tequila Don Julio sold 590,000 cases, making £105M, of which Diageo accounted for 345,000 cases and £75M in net sales.