Paul Walsh, the drinks company’s chief executive, said a deal for Mexico’s Cuervo had failed to materialise, since “it has not been possible to agree a transaction which delivers value for Diageo’s shareholders”.
Diageo’s valuation of Cuervo is understood to have differed significantly from its owners, the Beckmann family. The major point of contention was over the value of Cuervo’s mainstream tequila business, which has shown signs of decline in recent months.
As well as shelving the up-to $3bn (£1.9bn) acquisition, Diageo has put an end to a long-term partnership with Cuervo that sees it distribute the Mexican company’s tequila in several international markets, including North America, which accounts for 90 per cent of global tequila sales. Diageo said it would “work to ensure the orderly termination of the current distribution agreement,” which ends next year
Walsh has previously indicated that he did not feel the agreement was “paying its rent”. Diageo, which owns Smirnoff, Guinness and Baileys, is now expected to focus on its premium tequila brand, Don Julio.
Yesterday’s developments are bound to lead to speculation that the FTSE 100 company will re-ignite interest in US spirits group Beam, although there could be disagreements over the value of Beam’s own tequila, Sauza.