Diageo Walks Away from Jose Cuervo


Dear Client:

Diageo said this morning it has ended talks about taking over the Jose Cuervo tequila brand after failing to agree on a deal with the Beckmanns. As a result, Diageo will stop distributing Cuervo at the end of its distribution agreement in June.

Diageo ceo Paul Walsh said in a statement that the future of Cuervo "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."

Diageo has distributed Cuervo for a decade. The brand controls around a third of the global multibillion dollar tequila market and made Diageo about $482 million in its last fiscal year. "It is a disappointment. Diageo distributes the brand nearly everywhere outside Mexico and was clearly looking for a significant stake and ultimately control the brand. It made lots of sense as it would then have had see-though margins in the US and be able to push the brand much harder," Bernstein analyst Trevor Stirling told Wall Street Journal. "In all of these negotiations there is a complex mixture of emotion, pride and price. Clearly the balance wasn't right."

Until tomorrow, Emily

"Good habits are worth being fanatical about."
- John Irving

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