Diageo may struggle to get clearance to move on Beam Inc, according to UBS

Diageo may struggle to get clearance to move on Beam Inc, according to UBS

Diageo will focus on innovation within its existing Tequila portfolio after the end of its Jose Cuervo tie-up, but a lead role in a move for Beam Inc seems unlikely, an analyst has forecast.

Earlier today (11 December), the UK-based drinks company confirmed that its long-running talks with the owner of Cuervo, regarding a strengthening of their partnership, had proved inconclusive. Diageo will withdraw from its sales, marketing and distribution role in all markets outside of Mexico at the end of June.

In a note released after the announcement, Melissa Earlham at UBS said that she believes the company will look to up the presence of its other Tequila brand. 

“Diageo has exposure to super-premium Tequila through Don Julio,” Earlham said. “We expect premium Tequila to be an innovation focus.”

The Don Julio brand, which has a 2.5% market share in the US, is running at a CAGR (compound annual growth rate) of 24% over the past five years, the note highlighted. This compares to a five-year CAGR of -3% for the Cuervo portfolio in the country, which is the world's largest Tequila market.

Several industry observers have suggested that Diageo may now look to buy either the second-largest Tequila brand, Sauza, from owner Beam Inc, or even attempt to acquire Beam outright.

While conceding that “conjecture will likely increase” about the company's perceived interest in Beam, Earlham added: “We believe the technicalities of Diageo being able to lead a bidding consortium to secure the most interesting brands (Jim Beam, Maker’s Mark, Sauza) remain very challenging, given anti-trust regulation.”

Reports in the UK press last weekend suggested that Diageo had held discussions with Suntory about a possible joint bid for Beam.