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Bushmills Irish whiskey
Bushmills Irish whiskey, one of Ireland’s best-known whiskey distilleries. Photograph: Paul Faith/PA
Bushmills Irish whiskey, one of Ireland’s best-known whiskey distilleries. Photograph: Paul Faith/PA

Diageo swaps Bushmills whiskey for Don Julio tequila

This article is more than 9 years old
Swap deal with Casa Cuervo grabs drinks multinational a larger share of fast-growing tequila market

Drinks conglomerate Diageo has taken Bushmills Irish whiskey out of its drinks cabinet to gain full control of Don Julio tequila from the Mexican company Casa Cuervo.

The move gives the London based group a bigger share of the fast-growing market for expensive tequilas – Don Julio comes in several premium varieties that sell for £42-£140 a bottle and sales have been growing by 25% a year.

Casa Cuervo, whose namesake brand is the world’s biggest-selling tequila, also agreed to ending early its rights to make and distribute Diageo’s Smirnoff vodka in Mexico, further boosting Diageo’s position in a country with a growing pool of middle-class drinkers. As part of the deal, Diageo will get $408m in cash on completion, expected to be next year.

Diageo already owned 50% of Don Julio and has been expanding its tequila business since it failed in its efforts to take over Casa Cuervo in 2012. It is already the world’s biggest maker of spirits but has been keen to exploit consumers’ growing taste for the Mexican agave-based drink.

In the US, the largest market for tequila, where the drink is more popular than in Mexico, sales have more than doubled in a decade, hitting $2bn in 2013, according to the Distilled Spirits Council of the United States.

Sales have also been rising in the UK, where the drink is slowly shedding its reputation as a cheap drink downed as shots by students with lick of salt, a wedge of lime and a grimace.

Celebrities from George Clooney to Justin Timberlake have launched upmarket tequila brands. Rapper and record producer Sean Combs teamed up with Diageo in January to buy the ultra-premium DeLeón tequila, which sells for up to $90 a shot in some Hollywood bars.

Just 10,000 nine-litre cases of DeLeon were sold last year. The cheapest of the bottles, which are shaped like perfume bottles, sells for $120. The most expensive Leóna variety costs up to $1,000 a bottle.

Bushmills is brewed in County Antrim at what is claimed to be the world’s oldest distillery, tracing its roots back to 1608. Diageo took over the whiskey from Irish Distillers in 2005 for £200m. But the brand faces tough competition from Jameson Irish whiskey, owned by French rival Pernod Ricard. Bushmills has also been outsold by tequila: it earned Diageo £57m last year, while Don Julio was worth £105m.

Phil Carroll, an analyst at Shore Capital, said he was disappointed to see the sale of Bushmills. “Given the explosive growth in fellow Irish whiskey brand, Jameson... we always felt it had more potential that was not being exploited.”

Sales of Bushmills almost doubled between 2009 and 2013, with whiskey-loving consumers in the US leading the way, according to data from International Wine and Spirits Research.

The Old Bushmills Distillery on Northern Ireland’s scenic Causeway coast is also a popular tourist attraction.

Jose Cuervo said the current management structure and all jobs would be retained at Bushmills, with the manufacturing and tourism business operating as normal.

Juan Domingo Beckmann, its chief executive, said: “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.

“ Like Bushmills Irish Whiskey, Jose Cuervo is built on a very strong tradition of quality and craftsmanship that dates back over 250 years, so we understand the importance of nurturing and protecting the heritage and quality of a brand and are strongly committed to doing exactly that with Bushmills. Bushmills Irish Whiskey will be in very safe hands.”

Diageo said the swap made sense because it already owned two dozen Scotch whisky brands, including Bell’s, J&B and Johnnie Walker.

The asset swap will not break even for Diageo until 2018 and will weigh on Diageo’s share price for months, diluting earnings per share by 0.6% until the 30 June 2015.

Some investors may have concerns about the delayed profitability of the asset-swap deal, said Carroll, adding, “good brands don’t come cheap and arguably [and] the longer term potential of Don Julio looks very positive.”

Ivan Menezes, Diageo’s chief executive, said: “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.”

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