Diageo Plc agreed to sell Bushmills Irish whiskey for full ownership of Tequila Don Julio and $408 million to secure control of one of a fast-growing and upscale brand.
Bushmills will be sold to Jose Cuervo Overseas in exchange for the half of Tequila Don Julio that Diageo doesn’t already own, London-based Diageo said in a statement today.
“It’s a sensible deal,” Eddy Hargreaves, an analyst at Canaccord Genuity, said by phone. “They do get control of one of the few major tequila brands globally, which is something they’ve been trying to achieve for a number of years.”
The deal is a continuation of Diageo increasing its focus on more expensive liquor to boost profitability. The world’s largest distiller ended talks two years ago about the future of the Cuervo tequila brand, which it was said to have an option to buy. In 2003, it sold 50 per cent of the ultra-premium Don Julio brand to Cuervo.
“Today’s deal tidies up the whole arrangement with Cuervo,” Ian Shackleton, an analyst at Nomura International Plc, said by phone. “Don Julio and Bushmills are both good brands. There’s no doubt that today Don Julio has much more a premium, even ultra-premium aspect” as a bottle can cost about three times as much as that of Bushmills.
For Diageo, the deal delivers two key objectives, Chief Executive Officer Ivan Menezes said in the statement. “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.”
‘Good Brands’
The $408 million will be received on completion, which is expected to be in early 2015, the UK company said.
Diageo shares were little changed at 1,841 pence as of 9:08 am in London.
Don Julio is the market leader by value in ultra-premium tequila, which is the fastest-growing segment of the tequila category, according to Diageo. The brand’s sales advanced 27 per cent last year in markets where Diageo has distribution.
Growth is unlikely to abate, Diageo Chief Financial Officer Deirdre Mahlan said on a conference call. “We think that the growth rate for ultra-premium tequila is very strong,” Mahlan said. “When we look at this year and the future, we do think we’ll continue to get strong double-digit growth, not only in the strong markets, but as it continues to build on its strengths in the US and Mexico.”
Bushmills had sales of £57 million ($91 million) in the year ended 30 June and Don Julio had revenue of £105 million, of which Diageo accounted for £75 million.
‘Strategic Opportunities’
Jose Cuervo will retain all Bushmills’ current management and workers, according to Lisa Crane, a Diageo spokeswoman. “We don’t see it as losing anything,” Mahlan said. “We continually evaluate how we can utilize all assets in our collection of brands to grow within categories and important markets. While Bushmills is a good brand that had a good growth rate under Diageo’s ownership, it’s a good transaction for Diageo that allows us to capture strategic opportunities.”
Bushmills is an Irish whiskey founded in 1608. Diageo acquired the distillery in June 2005 for about $365 million. Diageo’s Menezes said during a conference call in July that Bushmills has underperformed in the US. “We have tried hard over the years to get this brand into growth, and we’ve struggled,” Menezes said at the time.
Bloomberg News, edited by ESM
