Diageo makes move into Chinese white spirits firm

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DIAGEO, Scotland’s biggest distiller, today snapped up a controlling stake in a Chinese white spirits company.

It came the day after Britain’s Office of Fair Trading launched an inquiry into Diageo’s purchase of what is in effect a dominant holding in Indian tycoon Vijay Mallya’s drinks giant, United Spirits, whose subsidiaries include Whyte & Mackay in Scotland.

Diageo said it had acquired 100 per cent of a holding company that would increase its ownership of Shanghai-based Shuijingfang (SJF) from 21 per cent to 39.7 per cent in a deal worth £233 million.

Analysts welcomed the deal as being in line with the British company’s strategy of building its exposure to emerging markets over the past decade, but were cautious on the timing.

Phil Carroll, drinks specialist at Shore Capital, said there had been a slowdown in the Chinese economy’s previous stellar growth and there was a crackdown by the government on giving gifts such as drinks for favours.

However, Carroll added: “That said, it has taken Diageo six years to get to this point in the transaction and it is looking at developing assets such as SJF on a medium to long term basis.”

The OFT has issued an “invitation to comment” on whether the Diageo/United Spirits tie-up would make the spirits market anti-competitive. The main focus is likely to be on any overlap in markets between the eponymous Whyte & Mackay brand and Diageo’s Bell’s brand.

Earlier this month Diageo spent £344 million for another 14.9 per cent in United Spirits, taking its holding to 25 per cent. But, with a voting agreement, it has control of the business.

The OFT has said any representations should be made by 2 August.