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The CFO of Diageo has defended the company's decision to sell the Bushmills Irish whiskey brand in return for Tequila Don Julio, claiming that the acquiror, Casa Cuervo, was keen to up its presence in international spirits.

Diageo is swapping Bushmills with Casa Cuervo for Don Julio

Diageo is swapping Bushmills with Casa Cuervo for Don Julio

Yesterday morning, the UK-headquartered company announced that it is swapping Bushmills for full ownership of Don Julio, in which Cuervo and Diageo hold a 50% stake each. The firm will also receive US$408m from Cuervo as part of the transaction.

The deal marks Diageo's full exit from the Irish whiskey category.

Speaking exclusively to just-drinks, however, Deirdre Mahlan argued that category presence is less important to Diageo than pursuing longer-term growth.

“In every transaction, there's always a question of what both parties are trying to achieve,” Mahlan told just-drinks. “We've been in a long-standing relationship with the Beckmann family (who own Casa Cuervo), and our strategies have both evolved over that time. As we went through and came out the other side, it was clear what we were both pursuing.

“Clearly, they wanted to expand their participation in international spirits, while we wanted to cement our position in premium Tequila.”

Mahlan flagged that Bushmills, the third-largest Irish whiskey brand behind Pernod Ricard's Jameson and William Grant & Sons' Tullamore Dew, accounts for less than 2% of sales from Diageo's total whisk(e)y portfolio. “The leading Irish whiskey brand (Jameson) has more than two-thirds of the category,” she added. “It has transcended the category.”

Mahlan highlighted that having a presence in every spirits category is not Diageo's strategy.

“You have to look at all your brands in the round,” she said. “We do have to look not just at Irish but at whisk(e)y in general and where we think we're going to get the best growth opportunities.

“Many times,” she added, “consumers don't think category first, as much as we in the trade do. They think brands first. We think broadly around whisk(e)y and consumer occasions and think about what assets and brands we have to be able to access those occasions. And, we feel comfortable.”

Mahlan conceded that Diageo's presence in the Bourbon category represented a portfolio gap, but only “in the sense that we don't have a scale Bourbon”.

“You have to look much more broadly at how you access strategic opportunities,” she added. “There are different ways to do that. If you do get hung up in a particular sector that has a reasonably scarce amount of assets available, I think you need things to be broadly about innovation and about drinking occasions and opportunities.”

Diageo's deal with Cuervo is set to complete early next year.


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