Make mine a tequila
No doubt, Diageo would love to lay its hands on a tequila brand like Jose Cuervo – the world’s leader of the tequila category. The transaction has been gossiped about for a year. In early May 2012, several media reported Diageo could be only weeks away from winning control of Jose Cuervo in a deal valuing the spirits company at about GBP 2 billion to GBP 3 billion. A likely option would be a share swap between the controlling Mexican Beckmann family and Diageo, by which the Beckmanns would sell a majority stake in Cuervo in exchange for shares in Diageo.
Analysts have said that, if the Beckmann family were to sell all, or a large part of the company for shares, they would probably emerge as Diageo’s biggest shareholder.
Diageo’s agreement to distribute Cuervo in many countries outside Mexico expires in June 2013, it was reported. Diageo’s CEO Paul Walsh has already made it clear that a renewal of the current distribution contract is not an option as the group does not make enough profit from the brand. But Nomura analyst Ian Shackleton said he would be surprised if the business is sold while the family head Juan Beckmann, 72, is alive and in control.
If Diageo fails to reach a deal then the world’s major drinks group will be on the hunt for another tequila brand, potentially triggering a fresh round of consolidation in the drinks sector.
A much rumoured scenario is that Diageo may then set its sights on Beam Inc., which owns the Sauza Tequila brand. Beam has said repeatedly it will remain an independent spirits company. It is valued somewhere between USD 9 billion and USD 10 billion.
Beam, a spirits company which was born after of the restructuring of conglomerate Fortune Brands in 2011, is enjoying the results of the split-off, improving its debt management and finding strong demand for its products, which include Jim Beam bourbon whiskey and Courvoisier Cognac.
However, it has been the subject of takeover speculation ever since the split.
Pernod Ricard has also been named a possible contender, although not in the near term, as they are currently focused on paying down debt.
Many observers think that a siege on Beam is not a question of “if” but “when”.
