Diageo finally seals Quanxing deal

Diageo has finally gained regulatory approval in China to acquire an additional 4% stake in Sichuan Chengdu Quanxing Group (Quanxing), taking its total holding in the company to a controlling 53%.

The £13 million deal gives Diageo indirect control of famous Baijiu brand ShuiJingFang, in which Quanxing currently holds a 39.7% stake. The £25 billion Baijiu market currently accounts for more than 30% of the booming Chinese alcoholic drinks sector.

The deal is hugely significant in that it marks the first time a foreign company has gained control of an important Chinese brand.

The regulatory approval marked the end of a long wait for Diageo, which first announced the deal some 16 months ago and follows more than a year of lobbying by the UK government.

In 2009 Beijing blocked a £1.5bn move by Coca-Cola to take over Huiyan Juice, a soft drinks maker.

Paul Walsh, Diageo chief executive, said: “We are privileged to have the unique opportunity to participate at scale in super premium Chinese white spirits, one of the largest, fastest growing spirits segments in the world.”

Diageo said it is confident that it can build the popularity of Baijiu around the world.

Gilbert Ghostine, president of Diageo Asia Pacific, said: “We are fully committed to build ShuiJingFang into an internationally successful iconic Chinese brand.”

Ghostine pointed to the fact the brand is already being sold at 14 regional airports and three regional airlines also list it, while Diageo has started sales of the brand at Dallas and Chicago airports in the US with two more airports targeted to stock the brand before the end of the year.

“We have managed to quadruple the sales of ShuiJingFang in the regional duty frees in Asia in the last two years,” he said. “It is going from strength to strength.”

As a result of the deal, Diageo must now seek approval from the Chinese securities Regulatory Commission (CSRC) to launch a mandatory tender offer (MTO) for the remaining shares of ShuiJingFang.

A Diageo statement confirmed: “Once the CSRC approval has been received, Diageo will immediately launch the MTO for the outstanding shares of ShuiJingFang in accordance with Chinese takeover regulations.”