After years of unsuccessful talks, Diageo plc (DEO) said on Monday, it had agreed on an asset swap with the family owners of Tequila Cuervo la Rojena SA de CV to strengthens the U.K. company's position in premium tequila.
Under the deal, Diageo will buy the outstanding 50% of the upscale Tequila Don Julio brand, while ending the Mexican co-owner's right to produce and distribute Diageo's Smirnoff vodka in its home market. Diageo will also sell its Bushmills whiskey brand to the Beckmann family's Jose Cuervo Overseas and receive a $408 million payment, which it will use to cut debt.
Diageo held the international distribution rights to Tequila Cuervo's mass-market Jose Cuervo brand for ten years from 2003 and had previously sought to buy control of that business from the Beckmann family, with the last public talks ending in December 2012.
Tequila Don Julio sold 590,000 cases of in the year ended June and made £105 million ($168 million) of revenue. Diageo accounted for 345,000 of those cases and £75 million of the sales, the London group said.
Smirnoff volume and net sales in Mexico were 285,000 cases and £9 million, respectively, while Bushmills volume and net sales in the same period were 800,000 cases and £57 million.
The companies expect the deal to close early next year. Diageo said the transaction will dilute earnings per share by 0.6% in the year ending June 2015 and break even on an "economic profit" basis by year three. A spokeswoman declined to elaborate on Diageo's statement.