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Diageo hires top banks to seal deal for tequila maker

GUINNESS maker Diageo has hired Goldman Sachs and HSBC as efforts to gain control of Mexican tequila maker Jose Cuervo intensify.

Diageo is already the world's biggest producer of spirits -- in Ireland it owns Bushmills and Baileys as well as Guinness -- but the drinks giant has been frustrated in its efforts to gain control of the tequila producer Jose Cuervo from its family owners, sources familiar with the plans said.

Increasing consolidation in the spirits sector has already seen Diageo rival Beam snap up Ireland's Cooley Distillery this year in a €100m takeover.

Jose Cuervo is owned by Mexico's Beckmann family and is reckoned to be worth as much as €2.2bn.

Diageo is understood to have an option to buy the company because of its distribution rights to the Jose Cuervo brand in countries outside Mexico.

The distribution deal expires next year and Diageo's chief executive officer Paul Walsh is known to want a deal closed long before that happens. Mr Walsh said in an interview with the 'Wall Street Journal' on March 26 that he "wouldn't take anything less than control, or a route to control", when asked about Jose Cuervo.

Mr Walsh has previously said Diageo wouldn't distribute the brand under the same terms after the agreement lapses, and would seek a more lucrative agreement.

Efforts to seal a deal have dragged on for almost a year, before Diageo's latest move to bring in international banks.

Discussions

There is even a risk that discussions between Diageo and the Beckmann family may not lead to a deal because it is unclear whether all of the family members are committed to a process, according to sources close to the talks.

If a deal is agreed, the family may take a mix of cash and shares in Diageo as consideration, said the sources, who declined to be identified because the talks are private.

A spokesman for Diageo declined to comment, as did spokesmen for Goldman Sachs and HSBC.

Diageo, based in London, is pushing into emerging markets and last year acquired Turkey's Mey Icki to add the country's largest maker of Raki liqueur for about $2.1bn (€1.6bn).

Cash access to supplies of the agave plant used to make tequila are among issues being discussed by the parties involved in the takeover bid, one of the sources said.

Rival drinks giant Brown-Forman secured its access to agave plants through the 2007 acquisition of Mexico's Grupo Industrial Herradura, maker of Herradura and El Jimador tequilas.

A year later, Brown-Forman wrote down the value of dead agave plants, used to make tequila, due to weather, insects and disease, a spokesman said at the time.

The value of Jose Cuervo works out at about $3.1bn (€2.3bn), Melissa Earlam, an analyst at UBS AG in London, wrote in a note published on March 27.

If Diageo used shares to pay the family, it could be accretive in the second year, she said.

Jose Cuervo is being advised by Barclays Capital on the talks.

Shares in Diageo closed down slightly in London on Friday, at 1,502.50 pence each, but remain close to a 12-month high.

Irish Independent