Diageo To Buy Majority Stake In Chinese Spirits Company
Diageo has signed an agreement to acquire an additional 4% stake in Sichuan Chengdu Quanxing Group Company (Quanxing) from Chengdu Yingsheng Investment Holding (Yingsheng). This 4% transfer, which is subject to a number of regulatory approvals, will bring Diageo's shareholding in Quanxing to 53%.
Quanxing is a holding company controlling a 39.7% stake in Sichuan Shui Jing Fang (ShuiJingFang), a Chinese white spirits company. If the 4% transfer is approved, Diageo will become the indirect controlling shareholder of ShuiJingFang. The consideration for the 4% transfer is approximately GBP14m (RMB139.7m).
In accordance with Chinese takeover regulations, were Diageo to become the indirect controlling shareholder in ShuiJingFang, Diageo will be required to make a mandatory tender offer to all the other shareholders of ShuiJingFang. Diageo will not become the indirect controlling shareholder in ShuiJingFang until all relevant regulatory approvals for the 4% transfer have been obtained. This is not expected to be before the second half of this calendar year.
However an indicative announcement of Diageo's intention to launch such a mandatory tender offer upon confirmation of all relevant regulatory approvals is published in China today. As part of the indicative announcement the mandatory tender offer price for ShuiJingFang has been set at the minimum price permitted by the Chinese mandatory offer regulations of RMB21.45 per share.
Were there to be full acceptance under the mandatory tender offer, the amount payable would be approximately GBP610m. As required by PRC law, 20% of the maximum consideration payable under the tender offer (GBP122m) has been deposited with China's securities depositary and clearing agency, the CSDCC, Shanghai Branch.
Paul Walsh, chief executive of Diageo, said: “Over the last three years we have built an excellent relationship with our partners in the Quanxing Group and ShuiJingFang, both through our support to the development of their business in China and with the launch of Shanghai White in Hong Kong. The transaction we have announced today will enhance this.
Diageo now 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.”
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