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Diageo Accuses Bacardi Of Trying To Drive Rum Competitor Out Of US

UK-based liquor maker Diageo Plc (DEO, DGE.L) said Tuesday that its rival Bacardi Ltd. is trying to drive Diageo's Captain Morgan rum production out of the U.S. to protect its own substantial government subsidies.

In a statement, Diageo's Executive Vice President Guy Smith accused that Bacardi, "which receives tens of millions of dollars a year in annual government rum subsidies," is leading a "hidden campaign to drive rum competitor out of the US and destroy the economy of the U.S. Virgin Islands."

Smith said that Bacardi is doing this so that they can protect their huge government subsidies by driving Captain Morgan rum production anywhere rather than the U.S. Virgin Islands.

Diageo and the U.S. Virgin Islands have signed a deal in July 2008 that would result in the production of as much as 20 million proof gallons of rum annually for its Captain Morgan brand for over 30 years at a new production facility in St. Croix, starting 2012. Diageo currently buys rum for Captain Morgan from Destileria Serralles in Puerto Rico in a contract that expires in 2012.

According to The National Puerto Rican Coalition, this move would enable Diageo to get direct and indirect tax incentives totaling $2.7 billion. Puerto Rican officials, according to the WSJ, have called the arrangement with the Virgin Islands an unfair corporate subsidy that should be outlawed.

Diageo said Tuesday that The National Puerto Rican Coalition is the front group in the anti-U.S. Virgin Islands initiative campaign, who were urging Puerto Ricans in the U.S. to boycott Diageo goods.

Diageo's Smith, in his statement, also said that Bacardi has been working behind the scenes in collaboration with other self-interested constituents and corporations and has used front groups and Puerto Rico politicians to make spurious claims about the U.S. Virgin Islands initiative.

In response to the announcement of Diageo, Patricia Neal, on behalf of Bacardi Corp. said in a statement, "This issue is about one point — the appropriate use of approximately 2.7 billion dollars in taxpayer money. This isn't about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the U.S. Congress and American people."

DEO closed Tuesday's regular trading at $65.44, down $0.42 or 0.64%, on a volume of 325 thousand shares.

DGE.L is currently trading at 1,059.2 pence, up 0.20 pence or 0.02%, on the LSE.

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