Rare hiccup for Diageo as it fails to swallow Jose Cuervo

 

Drinks giant Diageo has proved its acquisition strategy is not invincible by calling time on its bid to buy Mexico’s Jose Cuervo tequila brand, bringing to an end year-long talks.

The maker of Johnnie Walker and Smirnoff had been expected to acquire Cuervo, the world’s biggest tequila brand, from Mexico’s wealthy Beckmann family for more than  $3 billion (£1.9 billion) but today it admitted the discussions had ended.

Diageo said that both companies would now work to ensure “an orderly termination” of its long-standing distribution agreement at the end of June 2013 to sell Cuervo outside of Mexico.

The failed deal marks a rare hiccup for Diageo, which has sailed through the global downturn with almost uninterrupted demand for its brands and a series of big acquisitions.

The drinks company last month said it plans to acquire 53.4% of United Spirits for almost £1.3b billion to give it control of the Vladivar vodka and Whyte & Mackay whisky brands in the fast-growing Indian market. Diageo, which co-owns premium tequila brand Don Julio with the Beckmann family, has also completed deals for Brazilian, Turkish and Chinese distillers in the past two years.

It is understood the Beckmanns valued Cuervo at up to $500 million more than Diageo, with the UK firm believing a significant investment was required to turn around Cuervo’s falling sales in North America, and improve its margins.

Diageo chief executive Paul Walsh said: “We believe that the future of the brand would be best delivered by aligning ownership of the brand with its route to market, and I have no doubt that Diageo has the best route to market for this brand. However, it has not been possible to agree a transaction which delivers value for Diageo’s shareholders and therefore, by mutual agreement, we have terminated our discussions.”

The Beckmanns are heirs to the Cuervo family, who founded the company in the Mexican town of Tequila in 1795. Outside of Mexico, 90 per cent of Cuervo’s sales are generated in North America.

Shares in Diageo fell by 22p, or 1%, to 1864.5p.

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