Diageo swaps Bushmills Irish whiskey for Jose Cuervo’s Tequila Don Julio brand

Diageo Plc, the world's largest maker of alcoholic drinks yesterday agreed to sell Bushmills Irish whiskey to Mexican tequila and spirits maker Jose Cuervo for $408 million (€327 million) in exchange for full ownership of Tequila Don Julio brand.

Diageo, which had acquired 50 per cent of Don Julio in 2003 for $100 million, did not reveal the full financial terms of the transaction, but several media reports speculated that the total deal would be around $700 million.

Under the deal, Diageo will get the rights to distribute Don Julio in Mexico. It will terminate Jose Cuervo's production and distribution of Smirnoff in Mexico, as stipulated by the deal.

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.''

"We are proud to announce our agreement to acquire 100% of Bushmills. This is the most important purchase made by Cuervo in its entire history,'' said, Juan Domingo Beckmann, CEO of Jose Cuervo.

"This is a very exciting time for both Bushmills Irish Whiskey and Jose Cuervo. We see this acquisition as a fantastic opportunity to continue to nurture and grow the Bushmills Irish Whiskey brand globally, underpinned by the strong expertise and focus of Jose Cuervo as one of the world's leading drinks corporations," he added.

Jose Cuervo, the tequila brand was founded in 1795 by Don Jose Antonio de Cuervo, and is now controlled by the Beckmann family> In 2012 it appointed Barclays Capital to explore a possible sale of all or part of Jose Cuervo.

According to media reports, interested bidders were Bermuda-based family-controlled spirits company Bacardi, French spirits group Pernod Ricard and US-based alcoholic beverage maker Brown-Forman, but Diageo was expected to be the preferred bidder since it already holds part of Jose Cuervo and until last year the international distribution rights outside of Mexico.

Last year Diageo had held talks to buy the whole of Jose Cuervo for around £2 billion, but walked away from a deal after it failed to reach an agreement. After the talks broke down, the London-based company stopped distributing Jose Cuervo, but maintained its stake in Don Julio.

Founded in 1608, and one of the oldest licensed distillery in the world, Bushmills, was acquired by Diageo in 2005 for about $365 million, which spent around $50 million developing the brand.

Bushmills is the third-biggest selling Irish whiskey brand in the world, behind Jameson, and Tullamore Dew and had sales of £57 million in the year ended 30 June.

Jameson has sales of around two million cases annually, while Tullamore Dew has about 850,000 cases and Bushmills around 400,000.

Tequila Don Julio is the eighth largest brand in the US by volume and eleventh largest in Mexico and is manufactured in the city of Atotonilco El Alto, Mexico.

It 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, in the year ended 30 June 2014.

Diageo, whose products include Johnnie Walker, Bell's, Smirnoff vodka, Guinness and Gordon's Gin among many others is planning to expand in the fast-growing emerging markets like Brazil, Russia and India among others.

It had acquired Turkish spirits firm Mey Icki in 2011 for $2.1 billion. (See: Diageo to acquire Turkish distiller Mey Icki for $2.1 billion)