Diageo buys Dutch vodka stake

Drinks giant Diageo has ditched its interest in iconic Swedish vodka brand Absolut after today agreeing a deal for a 50% stake in Dutch vodka Ketel One.

The London-based firm pulled out of the auction to buy Absolut before last week’s deadline for indicative offers.

Diageo, which already owns the Smirnoff and Ciroc vodka brands, has paid $900m (€616m) to form a joint venture with Ketel One’s Dutch owners, the Nolet family.

Diageo said it decided Ketel One was a “better strategic fit” for the group, with significant growth opportunities.

Premium vodka Ketel One sells 1.9 million cases a year, 95% of which are in the North American market. Absolut has a more established market, selling around seven million cases annually.

Diageo is believed to have been one of four groups pitching for Absolut, put up for sale last month by the Swedish government, which owns its parent firm Vin & Spirit.

Other potential suitors are thought to include French group Pernod Ricard, US-based Fortune Brands and privately-owned Bacardi.

Diageo had acknowledged there would be regulatory hurdles to overcome in any bid for Absolut, but stressed today this was not the reason behind its move to back-out of the auction.

Diageo said it had been in talks with Ketel One’s Nolet family for some time ahead of today’s deal.

It hopes to further expand Ketel One’s reach outside of the US, focusing on Europe, Latin American and Asia Pacific.

In the UK, Diageo has made a concerted push into the spirits market to offset declining beer sales.

It has also been seeking to concentrate further on the growing super premium vodka market, growing its worldwide sales of Smirnoff and Ciroc by more than 20% a year.

Paul Walsh, Diageo chief executive, said: “This transaction is strategically important for us, giving us an interest in an outstanding high quality brand and fantastic potential for global growth in the super-premium vodka segment.”

The Nolet family, which has been distilling vodka for more than 310 years, has the option to sell its 50% stake in the business to Diageo in four or five years’ time.