Diageo has ended a year-long effort to buy Mexico’s José Cuervo and said it would now look for an “orderly termination” next summer of its contract to distribute the world’s top-selling tequila.
Paul Walsh, chief executive of the world’s biggest distiller by revenues, said both sides had decided to end the talks after failing to reach agreement.
Buying the 150-year-old group was always going to be complicated, given both its family ownership and the fact that José Cuervo owns the agave plants it uses to make tequila, making a purchase potentially more politically sensitive in Mexico.
The appeal was strong too, though, thanks to tequila's growing popularity in the US and Cuervo's leading position in the market. Its volumes in recent years were nearly double those of its nearest competitor, according to research by Just-Drinks.com.
Mr Walsh told the FT in August that Diageo was preparing a contingency plan should a deal with Cuervo’s Beckmann family fail to materialise.
“I cannot afford to be held hostage into overpaying for something, and therefore there are options. They may not be as good, but you would expect us to have some options and we have,” he said at the time.
These included doing the job inhouse, as it did with vodka when it created the Cîroc brand.
Jamie Isenwater at Deutsche Bank questioned the need for Diageo to buy a volume tequila brand when the fastest-growing market segment in the US was premium tequila, in which Diageo already has exposure.
Yesterday’s announcement follows speculation that Diageo was in talks with US spirits group Beam, which some analysts shot down given that the company was occupied with other transactions – including the Cuervo talks. Beam’s product line also includes Sauza, another top-selling tequila brand.
Shares in Diageo fell yesterday, by 1.6 percent in contrast to a relatively steady three-year climb. – Copyright The Financial Times Limited 2012
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