Diageo buys tequila brand Don Julio

Diageo has agreed to buy tequila brand Don Julio from Mexico’s Casa Cuervo with Irish whiskey brand Bushmills going the other way as part of the deal.

Diageo said the transaction will result in a net payment of $408m going to the UK-listed spirits company upon completion, which is expected in early 2015 subject to approval.

Diageo already owned 50% of Don Julio and the company failed in a bid to take over Casa Cuervo in 2012.

Ivan Menezes, Chief Executive, commented: “’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.

“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.”

Casa Cuervo has also forsaken its right to make and distribute Diageo’s Smirnoff vodka in Mexico.

Bushmills volume and net sales in the year ended 30 June 2014 were 800,000 cases and £57m. Tequila Don Julio had volume and net sales of 590,000 cases and £105m, of which Diageo accounted for 345,000 cases and £75m net sales in the same period.

Diageo said it will use the net proceeds to reduce debt. The transaction will dilute Diageo’s earnings per share by 0.6% in the year ending 30 June 2015, but is expected to break even within three years.