Diageo eyes China's growing spirit market with new deal

Drinks giant Diageo has agreed a deal that will allow it to expand its business in China's fast growing spirits market.

Diageo will acquire an additional 4% stake in Sichuan Chengdu Quanxing Group (Quanxing) for 140m yuan ($22m; £13m), taking its holding to 53%.

The deal will give Diageo an indirect control of ShuiJingFang, a famous brand of popular Chinese spirit Baijiu.

Baijiu accounts for more than 30% of China's alcoholic drinks market.

"We are privileged to have the unique opportunity to participate at scale in super premium Chinese white spirits, one of the largest, fastest growing spirits segments in the world," said Paul Walsh, Chief Executive of Diageo.

'Iconic Chinese brand'

While Baijiu's popularity within China has been on the rise, Diageo said it was confident of turning the spirit into an international success as well.

"We are fully committed to build ShuiJingFang into an internationally successful iconic Chinese brand," said Gilbert Ghostine, President of Diageo Asia Pacific.

Mr Ghostine said that the brand was already being sold at 14 regional airports and three regional airlines were also carrying it.

He added that Diageo had managed to start sales of the brand at Dallas and Chicago airports and was targeting sales at two additional US airports by the end of the year.

"We have managed to quadruple the sales of ShuiJingFang in the regional duty frees in Asia in the last two years," he said.

"It is going from strength to strength," he added.

Full control

Quanxing currently holds a 39.7% stake in ShuiJingFang.

Diageo said it is seeking approval from the China Securities Regulatory Commission (CSRC) to launch a mandatory tender offer (MTO) for the remaining shares of Shuijingfang.

China's economic growth has seen its liquor market expand at a rapid pace

"Once the CSRC approval has been received, Diageo will immediately launch the MTO for the outstanding shares of ShuiJingFang in accordance with Chinese takeover regulations," the company said.

Diageo said that it would offer 21.45 yuan per share, the minimum price permitted by Chinese takeover regulations.

The company will need to pay close to 6.6bn yuan ($1bn) if all the shareholders accept its offer.

"Diageo will fund the MTO through its diversified financing sources and strong global cash generation," the company said.