Brazilian cachaca firm Diageo’s new target

LONDON - Reuters

British drinks group Diageo is buying a maker of Brazil’s most popular spirit, cachaca, for about 300 million pounds ($469 million), boosting its expansion in fast-growing emerging markets while it fights for a bigger prize in tequila.

The London-based maker of Johnnie Walker whisky and Smirnoff vodka, which is aiming to get half of its sales from emerging markets by 2015, said on Monday it had agreed to buy Brazil’s Ypioca from its family owners.

The group has also recently invested in businesses such as Mey İçki in Turkey and ShuiJingfang in China to push up its sales from emerging markets which currently account for nearly 40 percent of its global total.

Ypioca is the third-biggest player in the market for cachaca, a spirit made from fermented sugar cane also known as Brazilian rum, and leader in the rapidly-expanding premium segment of the market.
Cachaca accounts for about 80 percent of the volume of the Brazilian spirits industry and, when mixed with ice, sugar and lime makes the Brazilian cocktail Caipirinha.

Diageo said its cachaca acquisition is expected to be earnings neutral in the first full year of ownership and cover its cost of capital by year five, which analysts said put it in line with recent deals. The British group did not give any profit figures for the Brazilian business.

Diageo, like other international drinks groups, is looking to build its presence in emerging markets in order to offset sluggish demand in austerity-hit Europe. The group has long been in discussions with the owner of Jose Cuervo tequila about taking a stake in the $3 billion-plus valued No.1 tequila brand, with some sources saying progress in the talks has slowed due to problems about the ultimate control of the brand.