Diageo to buy George
Clooney's Casamigos tequila for up to $1 billion
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[June 22, 2017]
By Martinne Geller
LONDON (Reuters) - Diageo Plc has agreed to
buy George Clooney's high-end tequila brand Casamigos for up to $1
billion, as the world's largest spirits maker seeks to lift its presence
in a high-growth market.
Diageo said late on Wednesday it would pay $700 million initially for
the company, co-founded by the American actor, with potential payment of
a further $300 million linked to performance over 10 years.
The deal comes two weeks after Pernod Ricard <PERP.PA> took a stake in
mezcal maker Del Maguey, and highlights the opportunity companies see in
Mexico's native spirits.
Several new, high-end tequilas has helped the drink change its
traditional image as a party beverage for young drinkers. Its sales rose
5.2 percent globally last year, according to data tracker IWSR,
outperforming a spirits industry that edged up only 0.3 percent.
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Diageo did not disclose revenue or profit figures, but Morgan Stanley
estimates the deal's enterprise value was about 20 times annual
turnover, which an industry source said would make it much pricier than
other spirits deals, which he said often get done at about 4 to 6 times
sales.
Diageo's North American president, Deirdre Mahlan, told reporters that
high-growth companies like Casamigos were "notoriously challenging to
value under traditional methods".
Casamigos, which means "house of friends," was founded in 2013 by
Clooney and his friends - nightlife entrepreneur Rande Gerber, who is
married to model Cindy Crawford, and real estate developer Mike Meldman.
They will continue to promote the brand.
Diageo, which has arrangements with other celebrities including David
Beckham and Sean Combs, said Casamigos would be neutral to earnings for
the first three years and add to earnings thereafter.
"If the brand sustains its growth, it could potentially be the next
Patron," Morgan Stanley analysts said, citing the biggest competitor in
high-end tequila. "But if not, it might be value destructive."
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![](../images/062217pics/busine59.jpg)
Actor George Clooney holds his trophy during a photocall after
receiving an Honorary Cesar Award at the 42nd Cesar Awards ceremony
in Paris, France, February 24, 2017. REUTERS/Gonzalo Fuentes
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They said the success of Casamigos, which has grown 54 percent over the last two
years, depended on the brand owners' star status, and flagged a risk of losing
focus in the next 10 years.
Diageo's shares were down 1.3 percent at 0923 GMT on Thursday, underperforming
the FTSE.
The brand sold 120,000 cases in 2016, primarily in the United States, and is on
track to reach over 170,000 by the end of the year. Diageo said expanding the
brand to Europe would be a source of future growth.
Casamigos sells for $45 to $55 per bottle, about the same price as Diageo's
other Don Julio tequila.
Bernstein analysts said Diageo could successfully sell both, with Casamigos
promoted as a celebrity lifestyle brand, and Don Julio positioned as a heritage
craft spirit, but they were sceptical.
"In our experience, it is difficult for sales, distributors and customers to
focus on two brands in the same category at similar price points at the same
time," they said.
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Diageo distributed the much bigger Jose Cuervo brand outside of Mexico until
2012, following its failure to strike a deal to buy it outright from the its
founding family. In 2015, it took over the Don Julio brand it had previously
shared with the family, trading it for its Bushmills Irish whiskey and cash.
The Casamigos deal is expected to close in second half of the year.
(Editing by Elaine Hardcastle and Edmund Blair)
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