The move will result in the early termination of Casa Cuervo’s production and distribution agreement for Smirnoff in Mexico. In turn, Diageo has reached an agreement to sell Bushmills to Jose Cuervo overseas.
The transaction is expected to result in a net payment of $408 million to Diageo upon completion, which is expected in early 2015. The company says the transaction is expected to be economic profit break-even in year 3 assuming a WACC rate of 9%.
Ivan Menezes, Diageo chief executive, said: “This transaction delivers two key objectives for us. 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 has realised this opportunity through the breadth and depth of our portfolio. It delivers our strategy: to build our presence in the world’s fastest growing markets and lead the industry in the biggest growth opportunities. I am delighted we have reached this agreement,” said Menezes.
Smirnoff volume and net sales in Mexico in the year ended 30 June 2014 were 285,000 cases and £9 million respectively. Bushmills volume and net sales were 800,000 cases and £57m in the same period.