Diageo seeks to raise stake in Chinese baijiu brand

Diageo has made an offer to raise its stake in China’s Sichuan Shuijingfang Company Limited as it moves to take control of the Shui Jing Fang baijiu brand.

Shui Jing Fang baijiu

In a statement released yesterday, Diageo said it had approached the board of directors of Sichuan Shuijingfang Company Limited (SJF) with a proposal for a “partial tender offer” to increase its stake in the company from 39.71% to 60% at an offer price of RMB62 per share  (£7.12).

“The announcement today, of the proposal outlined above, does not constitute the announcement of an offer and creates no obligation on Diageo and/or any Diageo subsidiary to make an offer. Accordingly, shareholders in SJF have been advised that such proposal is still under discussion and there can be no certainty that any offer will be made.

“Shareholders have been further advised to be aware of investment risks in SJF shares. Further developments will be communicated to shareholders in due course.”

The British drinks group already has a 100% controlling stake in the brand’s parent company, Sichan Chengdu Shuijingfang Group Company (SJF Holdco), having acquired the remaining 47% stake in the company for £233 million in 2013.

That acquisition is what gave Diageo an increased indirect interest in the Shanghai-listed company, Sichuan Shuijingfang Co Ltd of 39.71%, up from 21.05%, which owns the Shui Jing Fang brand.

In 2014, Diageo recorded a write-down in the value of the baijiu brand, as the Chinese spirits brand struggled against ongoing austerity measures in China.

Now, it appears Diageo is once again confident in the future of baijiu, moving to raise its stake in the brand further.

SJF made an announcement in respect of the proposal on the website of the Shanghai Stock Exchange, saying that the offer was “still under discussion and there is no certainty that that it will be made”.

“The company will continue to perform its information disclosure obligations in accordance with applicable laws and regulations. Investors are advised to stay informed of further announcements that may be issued by the Company and be aware of investment risks.”

The purchase of shares in the company would be funded by Grand Metropolitan International Holdings Limited – an indirect wholly-owned subsidiary of Diageo, which indirectly holds 39.71% of the total share capital of SJF.