Diageo, the world’s largest spirits company by sales, is stepping up the pressure on the family owners of tequila maker Jose Cuervo, demanding a resolution to year-long talks over an acquisition within the next few months.
The talks, which come amid the looming expiry of Diageo’s distribution rights for the top-selling tequila, have so far failed to make any headway. Failure to secure a deal would see Diageo on the hunt for another tequila brand, potentially triggering a fresh round of consolidation in the drinks sector.
Paul Walsh, chief executive of UK-based Diageo, has said he will not sign a new distribution agreement on the same terms after the existing one expires in June next year. “We want equity participation,” he said.
Given the time taken to offload stock and unwind relationships, Diageo is looking to wrap up a new deal by early summer.
Talks have continued since early last year, with Barclays Capital advising the Beckmann family, who own Jose Cuervo. Family ownership had proved an obstacle, said one person familiar with the situation. “If it was not family owned, Diageo would already own it,” he said.
Some analysts reckon family dynamics could scupper a deal. “I would be surprised if the business is sold while [family head Juan] Beckmann is alive and in control,” said Ian Shackleton, analyst at Nomura. “That could be another 10 to 20 years.”
Analysts have speculated that Diageo could instead consider buying Beam, the drinks portfolio split off from Fortune Brands last year and home of Sauza, the number two selling tequila.
Even if a deal is reached with Jose Cuervo, “there will be a big impact on Beam”, said Trevor Stirling, analyst at Bernstein Research.
Beam, which includes bourbon brand Jim Beam, has a market capitalisation of $9bn. It has stressed its ability to remain independent and, said Mr Stirling, delivered better than expected growth since splitting off.
Nonetheless “it reminds me of Allied Domecq. It’s clearly a second-tier company with an open share register and probably it’s a question of when, not if, the company becomes subject of a bid,” he said.
Buying Beam would give Diageo a tequila but also a bourbon, which would rule it out for the ultimate American whiskey – Jack Daniel’s – said Mr Shackleton. Brown-Forman, which owns Jack Daniel’s, is another family-controlled group that has not, so far, shown any inclination to sell.
Either way, he expects to see more mergers and acquisitions in the industry. “We are definitely at a stage where, if we get a significant move in this industry, we could see a domino effect [of other deals],” he said.
Diageo declined to comment. Jose Cuervo could not be reached for comment.
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