Diageo increases stake in Chinese baijiu market
Diageo PLC’s bid to buy a larger share in the maker of China’s Shui Jing Fang brand white liquor may provide the world’s largest alcoholic beverage maker with a major new influence over a leading Chinese consumer brand.
But Diageo will likely have only a minority stake, a fact that also highlights how foreign investors remain heavily constrained in one of the largest cash-generating sectors of the global drinks market.
Diageo – producer of Guiness beer, Smirnoff vodka and Johnnie Walker whisky – announced Monday it has agreed to become, indirectly, the largest single shareholder in the liquor brand Shui Jing Fang.
In the complex deal, Diageo will pay about $21 million to lift its stake to 53% from 49% in Sichuan Chengdu Quanxing Group, a holding company that owns about 40% in Shanghai-listed Sichuan Swellfun Co., which makes Shui Jing Fang.
Diageo said it will gain greater influence in China’s large market for baijiu, a white spirit that Diageo said accounts for about half the nation’s alcoholic-beverage consumption by volume.
Shui Jing Fang is the fourth-largest producer of premium baiju in China, with reported net sales of about $171 million in 2008.
A statement published by Swellfun, also know as Sichuan Shui Jing Fang Co., said the transaction reflects “wishes to further strengthen the cooperation between the joint venture partners in the Chinese white spirits industry.”
Completion of the deal is subject to approval by several Chinese agencies. The Commerce Ministry didn’t respond to questions Tuesday.
China has permitted foreign ownership in a number of famous brands – Asahi Breweries Ltd and Anheuser-Busch InBev NV each own minority shares in brewer Tsingtao Brewery Co., for instance.
But the government has taken a dim view of full foreign takeovers of big-name consumer brands.
A year ago, Chinese authorities cited antimonopoly concerns in rejecting a $2.4 billion bid by Coca-Cola Co to buy all of a major Chinese soft drinks maker, privately owned Huiyan Juice Group Co.
The rejection was widely seen by many lawyers and analysts as a protectionist measure designed to keep a valuable Chinese brand out of foreign hands, although Chinese officials denied that.
Wall Street Journal – Feb 2010