Diageo calls off tequila deal talks

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DIAGEO, the world’s biggest spirits maker, has pulled out of long-running talks to buy a stake in top-selling tequila brand Jose Cuervo.

The collapse of negotiations could fuel speculation that the British group will seek a deal with US group Beam, home of the world’s second biggest tequila brand Sauza.

A newspaper report said Diageo had held talks with Japanese brewer Suntory over a joint bid for Beam worth more than $10bn, though it added nothing had been decided. Diageo declined to comment.

Faced with sluggish growth in recession-hit European economies, Diageo is looking to tap burgeoning middle classes in Asia, Africa and Latin America, where it aims to make around half of its turnover by 2015.

A deal with Jose Cuervo, valued at about $3bn, would have given Diageo access to the Mexican spirits market and a stronger product range there to go with its Johnnie Walker whisky and Smirnoff vodka brands. Diageo, Cuervo’s main distributor outside Mexico, had been expected to take a stake in the business with the possibility of gaining majority control later. But a statement revealed discussions had broken down without agreement.

The two companies had been wrangling over price since last year. From June 2013 the distribution deal ends, leaving Diageo without a major tequila brand and Cuervo without a major distributor.

However, RBC analysts have noted that Cuervo only accounts for about three percent of Diageo revenues and two per cent of profits,