Pass the lime and salt. Today, Brown-Forman
According to the press release announcing the deal, Casa Herradura is the second-oldest tequila company and the third-largest one -- behind Cuervo, owned by the largest spirits company, Diageo
The brands that Brown-Forman will acquire in the deal include super-premium Herradura and premium El Jimador tequilas, as well as tequila-based, ready-to-drink New Mix. The purchase will set Brown-Forman back about $876 million and is expected to dilute corporate earnings by an estimated $0.08-$0.12 for fiscal 2007. As I detailed in an overview of Brown-Forman's fiscal 2006 earnings, the company tends to take a very long-term perspective in developing and promoting its liquor brands, so the near-term earnings dilution can be taken as confirmation that management is interested in what the next decade holds, rather than just the next quarter.
As such, the deal looks to be a good fit, since it gives Brown-Forman a couple of well-positioned and established premium tequila brands. It already owns a few other tequilas, including mid-priced, regional Pepe Lopez and super-premium, "developing" Don Eduardo. But the acquisition suggest that those brands were either not ideally positioned or that the company was just looking for more exposure to one of the faster-growing spaces in the liquor marketplace.
The related press release offered some useful supplemental information regarding the domestic and Mexican tequila markets. It stated that 86% of all tequila sales are made in the U.S. and Mexico and that tequila is among the fastest-growing of all spirits in both countries. Tequila also represents a dominant 42% of all liquors sold in Mexico, while it is the eighth-largest in the United States. Plus, demographic trends are favorable, since the Hispanic population is among the fastest growing here in los Estados Unidos.
Overall, the move appears to be a savvy yet expensive purchase of a company with a storied history. We'll soon know more about Brown-Forman as a whole -- it's set to release first-quarter earnings on Thursday -- but the company is definitely worth tracking. After all, consumers have been shifting from the likes of beer makers Anheuser-Busch
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