The UK Government’s business secretary is reportedly set to push Diageo’s case for a controlling stake in leading Chinese spirits producer Shuijingfang during a trip to the country this week.
Vince Cable was quoted in the Telegraph newspaper today (8 November) as saying that he would “raise” the prospective deal in discussions with Chinese officials. Cable is part of a high-level, UK Government delegation visiting China this week in order to improve trade ties between the two nations.
China has been wary of handing control of domestic companies to foreign businesses. In 2009, the country’s Ministry of Commerce blocked The Coca-Cola Co’s US$2.4bn takeover of Huiyuan Juice Group on competition grounds.
Diageo is seeking to wholly-own Shuijingfang via its position as an indirect shareholder in the firm, which is one of China’s leading white spirits producers.
Diageo agreed earlier this year to buy a 4% shareholding in Sichuan Chengdu Quanxing Group from Chengdu Yingsheng Investment Holding for GBP14m (US$22.6m). The move, if approved by authorities, would raise Diageo’s stake in Quanxing Group from 49% to 53%. Quanxing has a 39.7% stake in Shuijingfang.
If that deal goes through, then 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’s CEO, Paul Walsh, said earlier this year: “Diageo 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 already distributes Shuijingfang’s portfolio across South-East Asia.
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