Drinks company Diageo has reached an agreement with Casa Cuervo that will see it take full control and ownership of the Don Julio tequila brand.
As part of a plan to assure its place at the forefront of the super and ultra-premium segments of the tequila market, Diageo will take over Don Julio in its entirety, as opposed to the 50 per cent ownership it has previously held.
In exchange, it will arrange the early termination of Casa Cuervo’s production and distribution agreement in Mexico for the Smirnoff vodka brand. In addition, the biggest shift will be the sale of Diageo’s Bushmills whiskey brand to Jose Cuervo Overseas. After approval has been granted, Diageo says this could mean it receives a net payment of $408 million (£255 million) in the early months of next year.
Diageo chief executive Ivan Menezes said that the transaction achieves two key goals for the firm, by cementing its position in the high-end tequila market as well as expanding the firm’s footprint in Mexico - a country where he said the spirits market has impressive growth potential.
He added: “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.”
Don Julio currently doesn’t sell in the same volumes as Bushmills - volume and net sales of the whiskey stood at 800,000 cases and £57 million respectively in the year to the end of June, according to Diageo.
However, its higher price point means that it does bring in more revenue, having sold 590,000 cases over the same period to a net sales figure of £105 million. Last year, Diageo accounted for 345,000 cases and £75 million in net sales of the brand.
According to the Wall Street Journal, Diageo and Jose Cuervo had a long-standing distribution agreement which ended last year. Prior to that there had been discussions over whether Diageo could take over the company, but the two firms could not agree on terms that suited both equally.