Tags: diageo | jose cuervo | liquor | M&A

Diageo Said to Hire Goldman, HSBC for Jose Cuervo Talks

Sunday, 01 April 2012 05:14 PM

Diageo Plc, the world’s largest liquor maker, appointed Goldman Sachs Group Inc. and HSBC Holdings Plc for advice on gaining control of Jose Cuervo from family owners, people familiar with the plans said.

Cuervo, owned by Mexico’s Beckmann family, is expected to be valued at more than $3 billion and family sellers may gain cash or shares in Diageo as part of the deal, said the people, who declined to be identified because the talks are private.

Diageo, the maker of Johnnie Walker Scotch and Smirnoff vodka, has an option to buy the company because of its international distribution rights to the Cuervo brand, a person with knowledge of the discussions said in May. Diageo’s agreement to distribute Cuervo in countries outside Mexico expires in 2013.

Discussions between Diageo and Beckmann family members may not lead to a deal because it’s unclear whether all of the family members are committed to a process, the people said.

A spokesman for Diageo declined to comment, as did spokesmen for Goldman and HSBC.

Diageo, based in London, is pushing into emerging markets and last year acquired Turkey’s Mey Icki to add the country’s largest maker of Raki liquor for about $2.1 billion.

Supply, notably around the agave plant used to make tequila, are among issues being discussed, one of the people said. A competitor, Brown-Forman Corp., in 2007 gained agave plants through the purchase of Mexico’s Grupo Industrial Herradura SA, maker of Herradura and El Jimador tequilas.


Brown-Forman in 2008 wrote down the value of dead agave plants, used to make tequila, due to weather, insects and disease, a spokesman said at the time.

Paul Walsh, Diageo’s chief executive officer, said in an interview with the Wall Street Journal on March 26 that he “wouldn’t take anything less than control, or a route to control,” when asked about Cuervo. Walsh has previously said Diageo wouldn’t distribute the brand under the same terms after the agreement lapses, and would seek a more lucrative agreement.

The value of Jose Cuervo works out to about $3.1 billion, Melissa Earlam, an analyst at UBS AG in London, wrote in a note published on March 27.

An all-stock deal would be mostly neutral to Diageo’s earnings per share in the second year, while a cash deal would be about 3 percent accretive to EPS, the report shows.

Cuervo is a global leader in tequila with 19 percent volume share, twice the size of Sauza, the No. 2 player owned by Fortune Brands Inc., according to the UBS report.

The Sunday Telegraph earlier today reported Diageo hired Goldman to finalize talks with Jose Cuervo.

Cuervo is using Barclays Capital to explore options and negotiate a potential sale, people familiar with the matter said in May.

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Sunday, 01 April 2012 05:14 PM
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