Brown-Forman to Buy Assets of Tequila Maker

Brown-Forman Corp., which makes Jack Daniel’s, Southern Comfort and other liquor and wine brands, said Monday that it had agreed to acquire assets of Mexican tequila company Grupo Industrial Herradura for $876 million.

Brown-Forman will acquire Herradura and El Jimador tequilas, as well as the New Mix tequila-based ready-to-drink brand in the deal struck with the 136-year-old company’s owners, Pablo Romo de la Pena and Jose Guillermo Romo de la Pena.

Although Brown-Forman markets two tequila brands in the U.S. -- Pepe Lopez, a mid-priced brand that retails for about $15 a bottle, and Don Eduardo, a super-premium brand that retails for about $35 -- the new brands will expand the company’s offerings in the super-premium and premium categories in the U.S. and will expand its presence in Mexico.

Herradura retails at about $40 a bottle, and El Jimador is about $20 .

“They’re brands that have authenticity because they’re actually strong brands in Mexico,” said Phil Lynch, a spokesman for Louisville, Ky.-based Brown-Forman.

Other assets in the sale include tequila production facilities and a sales and distribution organization in Mexico.

The company, known as Casa Herradura, employed about 1,100 workers and reported sales of about $200 million in 2005. Brown-Forman had sales of more than $2.4 billion in its latest fiscal year.

About 380,000 9-liter cases of Tequila Herradura were sold worldwide in 2005, including about 70,000 in the U.S. Nearly 1.4 million cases of the premium El Jimador tequila were sold worldwide, including 150,000 in the U.S., where the brand has grown at double-digit percentages over the last four years. The New Mix brand sold about 4 million cases in 2005, all in Mexico.

“We’ve bought a business; we’re not just buying a brand,” Lynch said.

Tequila is the eighth-largest spirits category in the U.S., with about 9.1 million 9-liter cases, representing less than 6% of the total distilled spirits market, according to Brown-Forman.

“Tequila is a growth category, and Mexico is a growth market,” wrote Timothy S. Ramey, an analyst at D.A. Davidson & Co.

Lynch said he expected Casa Herradura’s workforce to remain “largely intact.”

The purchase will be financed with cash and debt. Brown-Forman expects the deal to dilute earnings by 8 cents to 12 cents a share during its fiscal 2007 and will depress profit for a couple of years beyond that before adding to earnings.

The deal is expected to close before year-end.

Brown-Forman shares fell 45 cents to $73.61.