Diageo and Diddy settle out of court

Diageo and rapper Sean ‘Diddy’ Combs have settled out of court their acrimonious battle about DeLeon tequila, and severed all business relationships.

A joint statement said: “Sean Combs and Diageo have now agreed to resolve all disputes between them. Mr Combs has withdrawn all of his allegations about Diageo and will voluntarily dismiss his lawsuits against Diageo with prejudice.

“Diageo and Mr. Combs have no ongoing business relationship, either with respect to Cîroc vodka or DeLeón tequila, which Diageo now solely owns.”

Combs owned 50% of DeLeon and a financial settlement has been reached in which Diageo has taken full ownership of the brand.

Finance

No details of the financial arrangements are being made public but the out-of-court settlement will be a relief to both sides.

Combs sued Diageo last May accusing the drinks giant of racism, alleging that the company did not make promised investments in Ciroc and DeLeon.

In court filings, Combs said Diageo told him race was one of the reasons it limited distribution of DeLeon to “urban” neighbourhoods. Combs also alleged he was also told that some Diageo leaders resented him making too much money.

Diageo rejected the allegations and labelled them “a transparent attempt to pressure Diageo into an early settlement of a planned parallel arbitration process”.

It also accused Combs of failing to fulfil his obligation as a 50% owner of DeLeon, alleging he invested only $1,000 in the project, while Diageo put more than $100m behind the tequila brand.

Revelations

A court battle could have led to detailed and sensitive commercial information being made public, revelations that neither side would have welcomed.

Diageo could also have faced potential negative claims about its award-winning record of championing diversity and equality.

Diageo’s relationship with Combs began in 2007 when he signed a profit-sharing deal to promote Ciroc vodka. By 2010 it had become the fastest-growing brand in the US.

In 2013 they jointly purchased DeLeon but the relationship soured after Diageo dropped its global distribution deal of the Jose Cuervo stable of tequilas and took full ownership of Don Julio in 2014 and then bought Casamigos for $1 billion in 2017.

In court filings Combs alleged that DeLeón sales floundered because of “sparse distribution and relegation to urban communities”. DeLeón, he claimed, was distributed in just 3% of all possible US outlets, compared with 34%, 36% and 14% respectively for Diageo’s Casamigos, Don Julio and 21 Seeds brands.

Diageo rejected those claims.

Shares fall

Despite its shares falling further on the announcement, the settlement with Combs will lift a cloud of uncertainty over Diageo’s shares, which have fallen by more than 20% in the past year.

Chief executive Debra Crew has stated her ambition to take tequila to the world in the same way as Diageo did with scotch in the late nineteenth century. Full control of DeLeon gives it an unparalleled portfolio in the category.

The group also announces its six-month results in 10 days’ time and analysts are hoping that it will deliver good news on the debacle in Latin America which forced it to issue a calamitous profits warning in November.

In late 2023, Combs also faced a lawsuit from singer Casandra ‘Cassie’ Ventura, his ex-girlfriend, alleging rape and sex trafficking. That was settled the day after it was filed.

However, Combs still stands accused of sexual assault and sex trafficking by three women in the US.