Diageo poised to bag ShuiJingFang after regulatory approval

Diageo poised to bag ShuiJingFang after regulatory approval

Diageo is able to launch a full takeover offer for ShuiJingFang, one of China's leading white spirits producers, after securing regulatory approval to acquire control of the group's largest shareholder.

just-drinks has published an update to this story, including extra comments from a source close to Diageo. To read the update, click here.

Diageo said today (27 June) that China's Ministry of Commerce has given it the green light to acquire an extra 4% of Sichuan Chengdu Quanxing Group Company. While the deal is valued at just GBP13m (US$20.7m), it will hand Diageo control of the company by taking its stake to 53%.

In turn, this is set to lead to the Smirnoff and Johnnie Walker distiller acquiring control of ShuiJingFang, in a deal that could significantly enhance its footprint in China's emerging spirits market.

Quanxing Group is the largest shareholder in ShuiJingFang, with a 39.7% stake. As required by Chinese law, Diageo said that it will "immediately launch" a mandatory tender offer for all outstanding shares in ShuiJingFang, which holds a strong position in the premium market for domestic white spirit Baiju.

If Diageo acquires all ShuiJingFang shares, it will cost up to RMB6.3bn (GBP609m, US$973m), the group said. In addition, it has agreed to provide Quanxing Group with RMB2bn for business development.    

However, a Diageo spokesperson was quoted as telling Reuters today that the drinks giant will not seek 100% ownership of ShuiJingFang. Instead, the spokesperson said, the group wants to continue working with an unspecified number of Chinese shareholders.

"We look forward to working with our Chinese partners to further develop the ShuiJingFang brand both domestically and overseas," said Diageo's CEO, Paul Walsh.

It has taken Chinese authorities more than a year to approve Diageo's agreement with Quanxing Group. In the past, China has taken a hardline on foreign ownership, as shown by its rejection of The Coca-Cola Co's US$2.4bn bid for Huiyuan Juice Group in 2009.

"We are privileged to have the unique opportunity to participate at scale in super premium Chinese white spirits," said Walsh today. "I am appreciative of the vote of confidence Diageo has received from the Chinese authorities and the tremendous support we have had from our own government as we seek opportunities for growth in our business."

News of the regulatory approval comes amid the visit of Chinese premier, Wen Jiabao, to the UK.

Diageo bought a 43% stake in Quanxing in February 2007 and raised this to 49% in July 2008.

[Updated 17:54 BST on 27 June 2011, to include reported spokesperson comments to Reuters]