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Diageo agrees to sell Bushmills whiskey as part of Tequila Don Julio deal

Published:  03 November, 2014

Diageo has agreed a deal with Jose Cuervo that would see it acquire Tequila Don Julio in exchange for its Bushmills Irish whiskey.

Diageo has agreed a deal with Jose Cuervo that would see it acquire Tequila Don Julio in exchange for its Bushmills Irish whiskey.

DiageoDon Julio tequilaDiageo has agreed to sell its Bushmills Irish whiskey as part of a deal which will see it acquire the Tequila Don Julio from Casa Cuervo.

This transaction will results in a $408 million payment to Diageo on completion, which is expected in early 2015, subject to approvals.

The asset swap with Casa Cuervo will see Diageo take full global ownership and control of Tequila Don Julio as well as the early termination of Casa Cuervo's production and distribution deal for Smirnoff in Mexico. In turn, Diageo has agreed to sell Bushmills to Jose Cuervo Overseas.

Diageo says the transaction is expected to be economic profit break-even in year three assuming a WACC rate of 9%. "Assuming completion of the transaction in early calendar 2015 and the use of the net proceeds to reduce debt at Diageo's average rate of interest, the transaction will dilute eps by 0.6% in the year ending 30 June 2015", it stated.

Ivan Menezes, Diageo's chief executive, 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.

"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."

But the Telegraph commented that the "the deal now in the offing is a shadow of what was previously discussed", when former Diageo chief executive Paul Walsh negotiated with the Beckmann family in a $3bn (£1.87bn) acquisition of the Jose Cuervo brand from Mexico's Beckmann family.

Those negotiations collapsed in December 2012, along with Diageo's deal to distribute the tequila in the lucrative US market.

While details of the component parts of the transaction are confidential, Smirnoff volume and net sales in Mexico in the year ended  June 30, 2014 were 285,000 cases and £9 million respectively. Bushmills volume and net sales in the same period were 800,000 cases and £57 million. Tequila Don Julio had volume and net sales of 590,000 cases and £105 million, of which Diageo accounted for 345,000 cases and £75 million net sales.