Global rum giant will pay a premium price to get into increasingly crowded premium tequila market
Source: WSJ
By Cara Lombardo
Jan. 22, 2018
Bacardi Ltd. is buying the maker of Patrón tequila in a deal that values the premium brand at $5.1 billion, said people familiar with the matter, one of the biggest liquor deals in years as rivals scramble to own more top shelf spirits.
Bacardi, best known for its namesake rum, has held a roughly 25% stake in Patrón Spirits International AG for nearly a decade, the people said. Bacardi is now buying full control with plans to distribute the Mexican-made liquor more widely and cash in on demand for high-end tequila, they added.
The two privately held companies are expected to announce the transaction as soon as Monday, the people said.
Over the last decade, global liquor makers have tried to adjust their portfolios to keep up with changing consumer tastes, especially as overall volumes fall and drinkers shift away from beer, vodka and rum. As part of that effort, producers have tried to change tequila from an inexpensive party drink to a more refined spirit comparable to a single-malt Scotch.
Patrón, which was an early entrant in the premium tequila market, is now the industry’s leader, with U.S. sales of $1.6 billion in 2016, according to Euromonitor, a market research firm. However, it faces increasing competition from several brands, including ones backed by celebrities such as George Clooney and Justin Timberlake.
“Adult consumers are very interested in high-end super-premium tequilas for sipping as much as cocktails,” said Frank Coleman, senior vice president at the industry group Distilled Spirits Council. At Patrón, “they’re now starting to finish tequila in sherry casks like the scotch guys.”
U.S. volumes of super-premium tequila jumped more than 700% from 2002 to 2016, compared with a 121% rise in all tequila volumes over the same period, according to the Distilled Spirits Council.
While Patrón has bottles that retail for as little as $45, others sell for hundreds of dollars and some limited-edition versions cost thousands of dollars. It was founded in 1989 by billionaire John Paul DeJoria, the same entrepreneur behind Paul Mitchell hair products, and Martin Crowley, an architect who has since died.
After the deal, Patrón’s existing leadership is expected to continue to oversee the business, including CEO Edward Brown, the people said. Mr. DeJoria is expected to continue to be an ambassador for the brand as a chairman emeritus, they added.
Bacardi’s competitors recently bought their own premium tequila brands. In June, Diageo PLC acquired Casamigos tequila, which was co-founded by Mr. Clooney, for up to $1 billion. Pernod Ricard USA said this month it will purchase the remaining 16% of Avión tequila that it doesn’t yet own. In 2015, Diageo swapped its Bushmills Irish whiskey brand for Don Julio, previously owned by José Cuervo.
Patrón, which is based in Schaffhausen, Switzerland, produces more than three million cases, or 36 million bottles, each year, while Casamigos was expected to produce about 170,000 cases last year. In addition to its namesake tequila, Patrón owns Pyrat rum and distributes Ultimat vodka.
Bacardi, which dates back 156 years to its founding in Cuba, is still controlled by its founding family though it switched CEOs last year and appointed Mahesh Madhavan to run day-to-day operations. Mr. Madhavan a 20-year company veteran who took over in October.
The Bermuda-based company, which also owns Grey Goose vodka and Dewar’s Scotch, has been trying to diversify as consumers spend more on aged bourbons and whiskeys. Bacardi, currently the fifth-largest spirits company in the U.S. by value, would jump to second place if the deal goes through.