Diageo Strengthens Tequila Category With Casamigos Buyout
Zacks Investment Research | Jun 21, 2017 09:59PM ET
Diageo (LON:DGE) plc (NYSE:DEO) is set to acquire the U.S. fastest-growing premium tequila brand, Casamigos, in a deal worth $1 billion. The company will initially pay $700 million and $300 million later after looking into the performance of the brand over the next decade. The transaction, which is expected to close in the second half of 2017, will be financed with a mixture of cash and debt.
Diageo, the owner of Johnnie Walker and Smirnoff brands, expects this acquisition to be earnings neutral for the first three years and accretive from fourth year onward. We note that Casamigos was created in 2013 by George Clooney, Rande Gerber and Mike Meldman. In fact, the brand has already delivered significant growth with shipments upto 120,000 cases in 2016, mainly in the U.S., and is currently on the path to reach more than 170,000 cases by the end of this year.
Post-acquisition, the co-founders of the Casamigos brand will continue to promote the brand and explore higher opportunities along with Diageo for further success of the high-end brand. To this end, we believe that the addition of Casamigos to Diageo’s portfolio will capitalize on its presence in the high-growth international markets. Additionally, it will strengthen the company’s market share in the fastest growing tequila category along with the existing Don Julio tequila brand, bought in Feb 2015.
It is to be noted that Diageo explores opportunities to expand geographically via acquisitions and partnerships. This liquor giant is also striding its footprint in the emerging markets of Africa, Latin America and Asia. In fact, management is putting greater thrust on high-margin products and has classified a group of brands as strategic brands that are expected to yield higher margins.
Notably, these aforesaid strategies have helped Diageo to outperform both the Zacks categorized Zacks Investment Research
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