Monday 23 April 2018

Diageo seals 'milestone' China acquisition

Diageo brews Guinness at St James Gate in Dublin
Diageo brews Guinness at St James Gate in Dublin

Denise Roland

Drinks giant Diageo is set to complete its acquisition of ShuiJingFang, a leading manufacturer of China's national drink baijiu, in a major coup for a foreign company

With company headquarters located at the St. James’s Gate Brewery in Dublin, the drinks producer  has paid £233m (€271m) to buy the 47pc stake in ShuiJingFang it did not already own, sealing its place as sole owner.

The move is a major coup for a foreign company operating in China, where domestic brands are closely guarded, and forms part of Diageo's overall drive to increase its presence in emerging markets.

"Given the clear high barriers to entry for such assets, we believe this deal should position Diageo well for the future," said Phil Carroll, analyst at Shore Capital.

Diageo has gradually increased its stake in the company since buying into it six years ago, and became one of the first foreign companies to gain a majority stake in a Chinese corporation in 2011. Back then, it raised its holding from 49pc to 53pc in a hard-fought battle which involved intensive lobbying by the British government.

Its sole ownership of ShuiJingFang HoldCo in turn raises its holding in the associated listed entity, known as Sichuan ShuiJingFang, from 21.05pc to 39.71pc. Such a corporate structure, while unusual in the west, is typical in China.

"This is a milestone in the journey we began with our partners six years ago," said Gilbert Ghostine, president of Diageo Asia Pacific.

"As the controlling shareholder in ShuiJingFang, Diageo will continue to work with the senior Chinese management to build ShuiJingFang into the leading international baijiu brand. I have every confidence in the long-term future of the baijiu category in China.”

Based in Chengdu, ShuiJingFang has been producing baijiu, China's most popular alcohol drink, for more than 600 years. It is the fourth biggest producer in the premium end of the market and sells a 500ml bottle of baijiu for an average price of about £60.

Diageo has a number of production facilities throughout Ireland, employing in the region of 1,500 people and producing brands such as Guinness, Baileys and Bushmills.

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