Diageo PLC, (NYSE: DEO) a major alcoholic beverage company, and distributor of brands such as Johnny Walker, Baileys and Smirnoff can now add Casamigos to its list of offerings.
A deal surfaced yesterday in which it was reported that Diageo will pay up to $1 billion, with $700 million coming with signing and $300 million coming from sales benchmarks over the next 10 years, for the premium tequila brand. This deal comes as a bit of a surprise to shareholders as the price point is very high. However the company believes that the fast expanding Casamigos will be able to return a positive EPS four years after full completion of the acquisition. In fact, the tequila brand championed by George Clooney is one of the fastest growing in the sector, shipping 120,000 cases in 2016 and expecting to ship over 170,000 in 2017, having only been launched in 2013.
The company plans to expand the brand to countries outside the United States and use the premium quality and association with one of Hollywood’s biggest stars to penetrate overseas markets. With the financial and infrastructural backing of Diageo, the brand Casamigos is expected to continue growing organically, with Clooney as well as his two co-founders, Rande Gerber and Mike Meldman, expected to stay on and continue operating the brand.
Investors reacted somewhat poorly to the news of the acquisition, with shares of DEO dropping about 2% in early Thursday trading, due to the high price point set by the company. However, the company remains unperturbed as it is priming for long term growth in the lucrative premium tequila market.