Diageo Reportedly Close To Cuervo Deal, Also In Talks With Mallya For USL StakeAugust 20, 2012
Diageo’s negotiations to acquire at least partial ownership of Jose Cuervo Tequila had been expected to be completed by earlier this summer, but new reports suggest the drinks giant may make an announcement this Thursday in conjunction with its yearly results. London’s Sunday Times reported that Diageo was closing in on a $3 billion deal to acquire Cuervo, to be funded at least partly by shares. The Telegraph, meanwhile, reported that negotiations could still drag on into September. Earlier this year, news surfaced that Diageo expected to have a deal secured by July for at least partial equity in Cuervo. The brand saw sales slide 11% in North America in the six months through December. It’s thought that Diageo would be more inclined to increase resources behind the brand once it gains an equity stake.
Also, rumors are swirling that Diageo is again in negotiations to take a stake in Indian spirits giant United Spirits Ltd. (USL). The two parties discussed a similar deal in 2009 but couldn’t agree to terms. USL, led by Indian mogul Vijay Mallya, saw volume grow 8.9% to 120.5 million nine-liter cases in 2011, according to Impact Databank. While USL continues to thrive, Mallya’s Kingfisher Airlines business has struggled in recent years, prompting speculation that a cash infusion from Diageo into USL could provide needed funding for the Mallya empire. Mallya, however, has denied that he would seek to rescue Kingfisher Airlines by selling a stake in USL—asserting that other funding alternatives are available—while acknowledging that he remains in touch with Diageo regarding joint business opportunities.
Diageo is present in India with its Johnnie Walker and VAT 69 Scotches as well as Smirnoff and Captain Morgan, but it has a lighter footprint in the market than chief rival Pernod Ricard, whose local whisky brands Royal Stag, Imperial Blue and Blenders Pride combine for around 20 million cases.
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