Diageo swaps tequila for whiskey in $1bn deal

Sean ‘P. Diddy’ Combs has a joint-venture with Diageo for DeLeón

Diageo, the owner of Guinness and Johnnie Walker whisky, has stirred up its drinks cabinet by swapping Irish whiskey for Mexican tequila in a $1 billion (£624.9 million) deal.

The spirits giant has agreed with Mexico’s Casa Cuervo to gain control of tequila brand Don Julio in return for Irish whiskey Bushmills.

Diageo will take control of the remaining 50 per cent of Don Julio that it does not already own and receive a $408 million payment from Mexico’s Beckmann family when the deal completes next year. Bushmills will be sold to the Beckmann’s Jose Cuervo Overseas.

The agreement is part of a long-running quest for Diageo to build up its presence in the growing tequila sector.

It previously distributed the world’s largest tequila brand — Jose Cuervo — in all regions outside of Mexico but this ended last year after its attempts for a takeover failed in 2012 when talks with the Beckmanns broke down.

Diageo retained its stake in the smaller Don Julio brand but instead started to buy up other tequila labels.It now owns “super premium” brand Peligroso and has a joint venture with music mogul Sean “P. Diddy” Combs for his tequila brand DeLeón.

Diageo chief executive Ivan Menezes 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.”

Terms of the new deal include Diageo distributing Don Julio, as well as its Smirnoff vodka brand, in Mexico.

Diageo, alongside other drinks groups, has suffered as emerging market sales growth slowed this year, with whisky and cognac hit after a crackdown on lavish spending in China. Tequila sales are particularly strong in the US.

Diageo said its transaction should break even in terms of profit by the third year.