Diageo said on Monday it had agreed a deal with Jose Cuervo to take full control of its Don Julio tequila brand in exchange for the British drinks group’s Bushmills whiskey label.
Under the deal Diageo will take control of the 50 percent of Don Julio that it does not already own as well as a $408 million payment. It will also gain the right to distribute Don Julio and its Smirnoff vodka in Mexico, boosting its position in the country.
The deal is expected to close in early 2015 and should be break even at the profit level by the third year, Diageo said, adding that the transaction would dilute earnings per share by 0.6 percent in the full-year to June 2015.
“This transaction delivers two key objectives for us,” Diageo Chief Executive Ivan Menezes said.
“We have secured our position in the growing super and ultra-premium segments of the tequila category and further strengthened our global footprint by expanding our leading position in Mexico where the growth of spirits has great potential.”
Diageo had previously distributed the much larger Jose Cuervo brand outside of Mexico. As the distribution deal neared expiration, Diageo tried to buy the brand outright, but talks with its owner, the Beckmann family of Mexico, broke down in 2012 and Diageo stopped distributing Jose Cuervo though it maintained its stake in Don Julio.
Diageo, the world’s largest spirits company, has since been trying to fill the gap in its tequila portfolio, buying brands DeLeon and Peligroso earlier this year.