Diageo in bid for Chinese spirits firm

Diageo has launched a £610 million bid to take control of a local white spirits venture in China as it seeks to cash in on the exceptional rate of growth in the country’s spirits market.

As the drinks business predicted last week , Diageo wants to strengthen its position in China, where locally-produced white spirits account for 50% of the total alcohol market, with sales of £13 billion last year.

Diageo agreed on Monday to buy a 4% shareholding in Quanxing from Chengdu Yingsheng Investment Holding for £14m, raising its stake in holding company Quanxing Group from 49% to 53%.

The deal is still subject to regulatory approval by the Chinese authorities, and this is not expected to come before the second half of the year.

Chinese regulations dictate that the move, which makes Diageo the indirect controlling shareholder in ShuiJingFang, in which Quanxing owns a 39.7% stake, means Diageo must offer to buy up all outstanding shares in ShuiJingFang at a cost of approximately £610m.

Diageo CEO Paul Walsh said: "This transaction provides Diageo with the platform to participate at scale and grow share in the largest, most profitable and fastest growing spirits segment in China; super premium Chinese white spirits.

"Diageo now has a valuable opportunity to build a substantial presence in super premium Chinese white spirits and it will enable us to bring one of the leading Chinese white spirits brands to international markets.”

Diageo anticipates the Chinese market for top-end spirits to increase by 10% in sales and 5% in volumes over the next five years, meaning the market would be worth a total of £3.6bn.

Currently, just 5% of Diageo’s global sales come in Asia, and the UK-based drinks giant is anxious to catch up with Pernod Ricard, which sees 20% of its sales come from the region.

Alan Lodge, 03.03.2010