Diageo to take controlling stake in Chinese company

28 June, 2011

Chinese regulators have approved Diageo’s acquisition of an additional 4% stake in Sichuan Chengdu Quanxing Group (Quanxing) from Chengdu Yingsheng Investment Holding Co (Yingsheng).

The 4% stake is worth RMB 140 million (£13 million) and would take Diageo’s holding in Quanxing to 53%.

Quanxing produces a well-known white spirit in China, called Shuijingfang.

Paul Walsh, chief executive of Diageo, said: “We are privileged to have the unique opportunity to participate at scale in super premium Chinese white spirits, one of the largest, fastest growing spirits segments in the world. I am appreciative of the vote of confidence Diageo has received from the Chinese authorities and the tremendous support we have had from our own government as we seek opportunities for growth in our business.”

Quanxing is currently the largest shareholder of Sichuan Shuijingfang Co (ShuiJingFang) which is listed on the Shanghai Stock Exchange.

Diageo is now seeking approval from the China Securities Regulatory Commission to launch the “required mandatory tender offer” for the outstanding shares of ShuiJingFang, in which Quanxing holds a 39.7% stake.

The company has offered RMB 21.45 per share – the minimum price permitted by government.  If all other ShuiJingFang shareholders accept the offer, the maximum amount payable would be approximately RMB 6.3 billion (£609 million). As required by Chinese law, 20% of the maximum amount payable has already been deposited with the China Securities Depository Clearing Corporation. The company said it will fund the offer “through its diversified financing sources and strong global cash generation”.

Separately, subject to the right opportunities becoming available, Diageo has agreed to facilitate financing for Quanxing of up to approximately RMB 2 billion (£193 million) for the development of its main business.

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