Diageo To Acquire Upscale Tequila -- WSJ

Diageo PLC 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 tequila market.

The world's largest spirits maker will pay the amount upfront to acquire Casamigos, co-founded by actor George Clooney, and said it would 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-estate tycoon Mike Meldman.

The Casamigos deal is Diageo's first since 2015. The company had been focused on jump-starting sales in the U.S., its biggest market, where performance has until recently been weak as consumers abandoned brands like Smirnoff and Captain Morgan for smaller rivals.

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.

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-based company recently launched an upscale Irish whiskey brand called Roe & Co. and has also launched pricey bourbon brands like Blade and Bow and Hilhaven.

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

Corrections & Amplifications Diageo recently launched an upscale Irish whiskey brand called Roe & Co. and has also launched pricey bourbon brands like Blade and Bow and Hilhaven. An earlier version of this article incorrectly stated one of the bourbon brands as Heaven Hill. (June 21, 2017)

(END) Dow Jones Newswires

June 22, 2017 02:48 ET (06:48 GMT)