Diageo wants control, not ownership, of ShuiJingFang

Diageo wants control, not ownership, of ShuiJingFang

Diageo does not intend to acquire all outstanding shares in ShuiJingFang, even though Chinese regulators have cleared the drinks giant to pursue a full takeover of the premium white spirits producer.

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%.

Quanxing Group is the biggest shareholder in ShuiJingFang, which means that, according to Chinese takeover rules, Diageo is bound to launch a mandatory tender offer for all outstanding shares in ShuiJingFang.

However, a source close to Diageo has told just-drinks that the Smirnoff distiller has priced its tender offer at the lowest possible amount allowed by law - RMB21.45 (US$3.30) per share - so as to dissuade ShuiJingFang's entire stakeholder base from selling up.

"It is not Diageo's strategic intent to own all shares," the source said. "Diageo does not need the rest of the shares to control and operate the company [ShuiJingFang]."

Throughout its global operations, Diageo has several ventures in which its controlling stake is backed up by significant local ownership. One example of this is Kenya-based East Africa Breweries Ltd, in which Diageo has a controlling 50.03% stake.

In China, meanwhile, just-drinks understands that the Chinese government's cautious stance on foreign ownership of domestic companies was also a consideration in Diageo's thinking on the ShuiJingFang tender offer.

However, should all of ShuiJingFang's remaining shareholders decide to sell up, it would cost Diageo a maximum of RMB6.3bn(US$973m),  the group said today. In addition, it has already agreed to provide Quanxing Group with RMB2bn for business development.

ShuiJingFang is the fourth largest producer of super premium Baiju white spirit. Baiju accounts for 57% of China's GBP42bn alcoholic drinks market by value, according to Diageo.

"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.

"We are privileged to have the unique opportunity to participate at scale in super premium Chinese white spirits," he said. "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."