Diageo raises Chinese stake

City A.M. Reporter
DIAGEO yesterday said it could spend at least £624m to take over China’s fourth-largest spirits group Sichuan Shui Jing Fang and add Chinese white spirits to its portfolio of top brands.

With half of China’s alcohol consumption accounted for by white spirits, Diageo, the world’s largest spirits group, is keen to expand into this category and add to its top brands such as Smirnoff Johnnie Walker.

Diageo said yesterday it has agreed to buy an additional four per cent stake in joint venture Sichuan Chengdu Quanxing, which in turn has 39.7 per cent of Shui Jing Fang, from partner Chengdu Yingsheng Investment. That takes its stake in the venture to 53 per cent for around £14m.

If approved by the Chinese authorities, Diageo would then become the indirect controlling shareholder in Shui Jing Fang as Quanxing would be required to bid for the rest of the company. Clearance for the four per cent transfer is not expected to be given until the second half of 2010, but a minimum price Diageo has to pay for the remaining shares in Shui Jing Fang has already been set at £610m by Chinese regulators.

Diageo chief executive Paul Walsh said the transaction provided the platform to participate in the largest, most profitable spirits segment in China.