Diageo to Buy Tequila Brand Casamigos -- Update

By Saabira Chaudhuri Features Dow Jones Newswires

Diageo PLC has agreed to buy upscale tequila brand Casamigos for $700 million, part of a larger push by the spirits giant to increase its exposure to the fast growing tequila market.

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The world's largest spirits maker will pay the amount upfront to acquire Casamigos, co-founded by actor George Clooney, and said it would pay also pay a potential $300 million over 10 years linked to performance.

Tequila is among the fastest-growing spirits in the world right now, with volumes increasing 5.3% last year compared with the 0.04% growth seen by the broader spirits industry according to industry tracker IWSR.

Casamigos, which was founded in 2013, sold 120,000 cases last year, mainly in the U.S. The brand is expected to hit 170,000 cases this year. Its other co-founders are Rande Gerber, husband of supermodel Cindy Crawford, and real-estare tycoon Mike Meldman.

Diageo plans to expand Casamigos internationally, saying it sees strong potential across Western Europe in particular. The tequila comes in three variants that sell for between $45 and $55 a bottle.

"The category is relatively underdeveloped outside North America and we see a huge opportunity for our existing brands and Casamigos," said Diageo's North America head Deirdre Mahlan on a call with reporters.

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The deal is Diageo's second in premium tequila in recent years. The drinks giant in 2015 swapped its Bushmills Irish whiskey brand for Don Julio, previously owned by Jose Cuervo. It also owns two other tequila brands, Peligroso and DeLeon, but these are much smaller, selling under 10,000 cases a year according to Ms. Mahlan.

Diageo, like its rivals, has said it would focus on growing premium brands as the company grapples with a stricter regulatory environment. Alcohol volumes in major developed markets have also dropped as people drink less but better.

As part of that push, the London-headquartered company recently launched an upscale Irish whiskey brand called Roe & Co. and has also launched pricey bourbon brands like Blade and Bow and Heaven Hill.

Diageo said the deal will be earnings neutral for the first three years and accretive thereafter. It should close in the second half of this year.

--Tapan Panchal contributed to this article

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

June 21, 2017 13:58 ET (17:58 GMT)