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Diageo is said to be in talks to buy tequila maker Jose Cuervo

May 24, 2011|Bloomberg News

Diageo, the maker of Johnnie Walker scotch and Smirnoff vodka, is in talks to buy Jose Cuervo, the world's biggest tequila brand, for more than $2 billion from its family owners, according to three people with knowledge of the matter.

Cuervo is in exclusive discussions with Diageo, which has the first option to buy the company because of its international distribution rights to the brand, said one of the people, who declined to be identified because the talks were confidential. The negotiations may not lead to a deal because the Beckmann family, which owns Cuervo, hasn't committed to selling, the people said. One person said the Beckmanns were leaning toward a sale.

Other liquor companies, including Pernod-Ricard, are interested in the business as well, the people said. Diageo hasn't yet formally retained bankers to advise on a transaction, while Cuervo is using Barclays Capital to explore options and negotiate a potential sale, the people said.

Spokesmen for Diageo and Cuervo declined to comment.

London-based Diageo, the world's largest liquor maker, has been expanding in emerging markets and plans to make purchases in places where growth is faster, its chief financial officer said this year.

The Beckmanns and Diageo are exploring a deal ahead of Jim Beam maker Fortune Brands Inc.'s plan to focus on its distilled-spirits business and shed unrelated products, the people said. That has led to takeover speculation for Beam, which makes Sauza tequila, the world's No. 2 tequila brand.

Juan Beckmann Vidal, chairman of Casa Cuervo, said this month that the company was renegotiating its distribution deal with Diageo and wasn't considering selling the brand.

Jose Antonio de Cuervo obtained land from the king of Spain in 1758, and the first Vino Mezcal de Tequila de Jose Cuervo was made in 1795, according to the brand's website. All Jose Cuervo is made in Tequila, in the Mexican state of Jalisco. Tequila is made from the blue agave plant and has to be produced in a designated area to be labeled Tequila, the website says.

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