Diageo acquires control of Chinese spirits brand Shuijingfang
First the release of dissident artist Ai Weiwei, then the go-ahead for a long-blocked deal. China moves in mysterious ways. Who would have thought that one day Beijing would allow a foreign company to gain control of a Chinese brand? At the end of June 2011, Diageo, the world’s number one drinks company, was given the green light by China’s antitrust body to acquire one of China’s best-known liquor makers in a deal that could pave the way for one of the first foreign acquisitions of a big Chinese listed company.
Diageo, which produces Guinness and Johnnie Walker, said on 27 June 2011 it had approval to raise its stake in its joint venture Sichuan Chengdu Quanxing by 4 percent to 53 percent for 140 million yuan (USD 22 million), and this would trigger an offer for Shuijingfang.
Quanxing has a stake of 39.7 percent in Shuijingfang and, under Chinese rules, if Diageo has control of Quanxing, it must launch a mandatory tender offer for the whole of Shuijingfang, which is listed as Sichuan Swellfun.
It could cost Diageo as much as USD 1.3 billion to buy all of Sichuan Swellfun. But Diageo already told Chinese media that it did not intend to take full control of Sichuan Shuijingfang, China’s fourth largest white spirits group.
The complex deal will nevertheless give Diageo a foothold in China’s EUR 28 billion baijiu market (IWSR estimates for 2009) - something it has long wanted.
Drinks makers including Pernod Ricard have been scrambling to enter the Chinese baijiu market, as Chinese drinkers trade up from cheap gut-rot to more expensive local brands.
Shuijingfang, listed in Shanghai under the English name Swellfun, reported sales revenue of Rmb1.8 billion (USD 277 million) last year and a profit of Rmb 400 million.
Does this transaction mean that China has done a U-turn on its previous policy of keeping foreign investors’ influence to a minimum? It will be remembered that China’s antimonopoly regulators rejected Coca-Cola’s proposed USD 2.4 billion takeover of Huiyuan, a Chinese juice maker, in 2009 and told the newly formed AB-InBev that it would be unable to increase its pre-existing stakes in Tsingtao Brewery and Zhujiang Beer, which in fact forced the world’s number one brewer to sell its 27 percent stake in Tsingtao.
Call me a cynic, but I believe the Chinese know very well when they have to play to the gallery to get things done.
Think of the timing of this announcement: it came as China and the UK announced GBP 1.4 billion in trade deals, with Wen Jiabao, Chinese premier, meeting David Cameron, UK prime minister, in London.
And when was Ai Weiwei released from prison (only to be put under a gagging order)? That was a few days before Wen Jiabao met Germany’s chancellor Angela Merkel in Berlin to sign trade deals valued at USD 15 billion.
In the end the Chinese, Brits and Germans got a good press. And to achieve this aim the Chinese only had to change step - not track. This should be borne in mind.
