Shares in Diageo were down by nearly 2% this morning after the drinks giant confirmed it had ended long-running talks to acquire tequila brand Jose Cuervo.
It had been in talks with Jose Cuervo’s Mexican owners for more than a year, but CEO Paul Walsh said it had “not been possible to agree a transaction which delivers value for Diageo’s shareholders”. The news comes just days after weekend press reports linked Diageo to bourbon producer Beam.
Although analysts said terminating the talks was the “first setback for Diageo we can recall in a good 18 months”, they also reasoned that it could free Diageo up to focus on its own tequila brand Don Julio, or to take a serious look at Beam, which owns the number two tequila brand Sauza.
“The operational bright side is that this failure to come to terms with Cuervo clears the regulatory path in an advantageous way for Diageo on the issue of tequila,” said Anthony Bucalo, an analyst at Groupo Santander. But Phil Carroll at Shore Capital was less convinced: “We do not expect it to be interested in the Sauza brand via Beam due to valuation so the likely result is that it will innovate in the space.”
It concludes a busy year of takeover activity for Diageo. Last month, it bought a controlling stake in India’s United Spirits group for £1.28bn. In the summer, it also upped its stake in Hanoi Liquor Joint Stock Company in Vietnam by 10.62% to 45.52%.
In May it bought Brazilian spirits maker Ypioca for £300m. And at the beginning of the year it completed a deal to take over leading spirits group Sichuan Chengdu Quanxing in China.
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