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Diageo swaps Bushmills for Cuervo Tequila

Diageo has agreed to give its Bushmills Irish whiskey to Jose Cuervo in return for full ownership of Don Julio Tequila.

Don-Julio Tequila Diageo
Diageo is sacrificing its stake in Irish whiskey with the swap of Bushmills for super-premium Tequila Don Julio

The British drinks group has struck a deal with the Tequila group to acquire the remaining 50% of Don Julio that it doesn’t own, the early termination of Cuervo’s production and distribution of Smirnoff in Mexico, and a lump sum of US$408m.

In return, Cuervo will be given the Bushmills Irish whiskey business, which sold 800,000 cases worldwide in the year to June 2014, generating £57m for Diageo..

Completion of the deal, expected in early 2015, will allow Diageo to achieve its long-term goal of building its super- and ultra-premium Tequila portfolio, which grew this year with the purchase of a 50% stake in rap star Sean “Diddy” Combs’ DeLéon Tequila, and the acquisition of Peligroso in the same month.

In January this year Diageo CEO Ivan Menezes hinted that the group would be on the acquisition trail after a proposed agreement to outright purchase Jose Cuervo, with which it had a long-term distribution agreement, fell through last year.

The subsequent loss of the Jose Cuervo business in June 2013 impacted Diageo’s full-year revenues immediately, with its Q1 2013/14 revenues coming in flat.

However the British drinks group has since set its sights on higher-end Tequila, having seen a 25% sales increase on Don Julio year-on-year.

It expects to see a return on the investment in year three.

Bushmills’ relationship with high-profile music and TV stars, like Breaking BAd’s Aaron Paul, helped generate 800,000 case sales last year

Two key objectives

Ivan Menezes, CEO of Diageo, said: “This transaction delivers two key objectives for us. 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.”

Don Julio Tequila reported 800,000 case sales in the year to June 2014, with revenues of £105m. Diageo’s business accounted for almost 60% of the sales (345,000 cases; £75m net sales).

“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.”

The deal leaves Diageo without a premium Irish whiskey, one of the fastest-growing spirits categories of the past few years, which is expected to grow to 12 million cases by 2020.

Although the category is booming in the US, sales in its secondary market of Ireland fell by 20% in the year to June 2014 as a 42% increase in excise tax in the past two years takes effect.

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