Diageo builds presence in China

Diageo builds presence in China

Diageo has signed a deal to take a controlling stake in China's Sichuan Chengdu Quanxing Group, paving the way for the drinks giant to acquire one of the country's leading white spirits producers.

Diageo has agreed to buy a 4% shareholding in Quanxing from Chengdu Yingsheng Investment Holding for GBP14m (US$21.2m), raising its stake in Quanxing Group from 49% to 53%, the producer of Smirnoff vodka and Johnnie Walker whisky said today (1 March).

If approved by China's competition authorities, the move will make Diageo the indirect controlling shareholder in ShuiJingFang, a leading producer of premium white spirits.

Quanxing, a holding company, has a 39.7% stake in ShuiJingFang.

"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," said Diageo CEO Paul Walsh.

Regulatory approval for the deal with Quanxing is not expected before the second half of calendar 2010, into Diageo's next fiscal year.

If the deal goes ahead, Chinese law dictates that Diageo must then offer to acquire all outstanding shares in Shanghai Stock Exchange-listed ShuiJingFang. This would cost Diageo around GBP610m, it estimated.

"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," said Walsh.

Diageo already distributes ShuiJingFang's portfolio across Southeast Asia and has recently launched the firm's Shanghai White super premium vodka in Hong Kong.

ShuiJingFang is the fourth largest super premium white spirits brand by volume in China, according to Diageo.

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