Diageo is beefing up its niche presence in the tequila market through a deal with Casa Cuervo to take full control of Tequila Don Julio [in which it currently has a 50% share] in return for the sale of Irish whiskey Bushmills to Jose Cuervo Overseas.

 

Diageo will receive a net payment of $408m on completion of the transaction, which is expected early next year, subject to approvals. The drinks giant says that the net proceeds will help to reduce debt.

 

The tequila acquisition requires early termination of Casa Cuervo’s production and distribution agreement for Smirnoff in Mexico. A Diageo spokesperson tells TRBusiness: “This move allows us to fully integrate Tequila Don Julio into our portfolio and really drive it forward now that we will have full management and marketing control.”

 

The spokesperson adds: “Part of our strategy is to build our position on the growth segments of tequila… essentially super premium.” The company is also expected to fully exploit the growth opportunities it sees in the Mexican market.

 

Diageo Chief Executive, Ivan Menezes, reiterates the points: “This transaction delivers two key objectives: 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.”

 

The company says that details of the component parts of the transaction remain confidential but it has released volume and sales data. Smirnoff volume and net sales in Mexico in the year ended 30 June were 285,000 cases and £9m ($14.4m) respectively while Bushmills volume and net sales in the same period were 800,000 cases and £57m ($91m) – more than six times as big. Tequila Don Julio had volume and net sales of 590,000 cases and £105m ($167.6m), of which Diageo accounted for 345,000 cases and £75m ($120m).