U.K.-based spirits maker and distributor Diageo plc (DEO) recently inked a deal with the owners of Tequila Cuervo la Rojena SA de CV to gain full control of the tequila brand Don Julio. The move is part of the company’s strategy to boost its presence in the premium tequila category.
Under the deal, Diageo will sell its Bushmills whiskey brand to Jose Cuervo Overseas for $408 million, and intends to use the proceeds for reducing debt. The deal also requires the early termination of Casa Cuervo's production and distribution agreement for Smirnoff in Mexico.
The deal is expected to close in early 2015 and will add 0.6% to earnings per share by 2015-end.
There have been rumors regarding Diageo’s interest in buying José Cuervo, the leading tequila brand, produced by Tequila Cuervo La Rojeña, S.A. de C.V, since 2003. The brand boasts the highest sales among all tequila brands in the world. The two companies signed a joint venture in 2003, where Diageo held the distribution rights for the brand. It also launched a marketing campaign 'Cue the Cuervo' across the U.S., propagating Cuervo as a night-time party drink.
The company has been gradually adding brands and companies popular in emerging markets, though it has been hit hard by plunging Chinese sales amid a government clampdown on conspicuous consumption.
Diageo currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the alcohol/beverage sector is Boston Beer Company Inc. (SAM) carrying a Zacks Rank #2 (Buy). A couple of other consumer staple stocks worth considering are Keurig Green Mountain Inc. (GMCR) and Monster Beverages (MNST) with the same Zacks Rank as Boston Beer.
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