Tequila Talks Ended by Diageo

Diageo PLC, on Tuesday, ended discussions with Jose Cuervo, the tequila maker, after a deal was not reached with the Beckmann family of Mexico to purchase a stake.

Diageo will forfeit the entire brand as its contract for distribution with Jose Cuervo ends next year on June 30. The spirits maker based in the UK has been clear about its desire for an agreement that included equity in Jose Cuervo that is very popular in the United States. The Beckmann’s are the original Cuervo family’s heirs. The brand was started by the Cuervo family during the latter part of the 19^th century.

Diageo CEO Paul Walsh said an agreement was not reached that would deliver value for the shareholders of Diageo and therefore, the discussions have been terminated by mutual accord. A deal that would have given control to Diageo of Jose Cuervo had been reported to be in the area of $3 billion for their stake.

Jose Cuervo has close to 33% of the worldwide tequila market that is a multibillion dollar market. Last fiscal year, the tequila sold $482 million for Diageo, of which just less than ninety percent was from North America. The UK based Diageo distributes nearly 4 million cases that hold nine liters of Jose Cuervo across the different export markets such as Spain, Canada and the U.S.

Diageo has been trying to reinvigorate Jose Cuervo, which was hit by issues over supply and a shift by consumers away from the dark tequilas.

One analyst said it was disappointing that an agreement was not reached, since the brand is distributed nearly everywhere by Diageo outside of Mexico. Diageo said the analyst was looking for a large stake in the brand and eventually control as it made sense for them.