Diageo Chinese White Spirits regulatory approval

RNS Number : 1811J

Diageo PLC

27 June 2011

 



27 June 2011

Diageo gains regulatory approval for majority shareholding in Joint Venture Chinese White Spirits Company. Approval now sought to launch the Mandatory Tender Offer.

Chinese regulators have approved Diageo's acquisition of an additional 4% stake (the "4% transfer") in Sichuan Chengdu Quanxing Group Company Ltd. ("Quanxing") from Chengdu Yingsheng Investment Holding Co., Ltd ("Yingsheng").  Steps are now being taken to complete the 4% transfer for a consideration of about RMB 140 million (£13 million).  Once completed, this 4% transfer will bring Diageo's holding in Quanxing to 53%. Quanxing is currently the largest shareholder of Sichuan Shuijingfang Co., Ltd. ("ShuiJingFang") which is listed on the Shanghai Stock Exchange.

Diageo is now seeking approval from the China Securities Regulatory Commission ("CSRC") to launch the required mandatory tender offer ("MTO") for the outstanding shares of ShuiJingFang, in which Quanxing holds a 39.7% stake. Diageo expects to receive the CSRC approval in due course.

Once the CSRC approval has been received, Diageo will immediately launch the MTO for the outstanding shares of ShuiJingFang in accordance with Chinese takeover regulations. The MTO price of RMB 21.45 per share has been set at the minimum price permitted by Chinese takeover regulations. Were all other ShuiJingFang shareholders to accept the MTO, 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. Diageo will fund the MTO through its diversified financing sources and strong global cash generation.  Further announcements at the launch of the MTO and of the results of the MTO will be made in due course.

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.

Paul Walsh, Chief Executive of Diageo, commented: 'I am delighted that Diageo's application to increase its investment in Quanxing has been approved by the Chinese authorities. We look forward to working with our Chinese partners to further develop the ShuiJingFang brand both domestically and overseas.

'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.'

A spokesman for Diageo's Chinese business partner, Yingsheng, commented: 'I am very pleased that Diageo has received Chinese government approval for its increased investment in Quanxing.  We look forward to working even more closely with our partners at Diageo to build a world-class Chinese 'bai jiu' business.  I am sure that with Diageo's support, ShuiJingFang will become the world's leading 'bai jiu' brand in international markets.  I am grateful for the strong support we have had from the Chinese central authorities and the Sichuan provincial government.'

Gilbert Ghostine, President of Diageo Asia Pacific said: 'We are thrilled with the opportunity we have been given to increase our investment in ShuijingFang and to deepen our partnership with the Quanxing Group.  I am confident that we have chosen the best possible partner in super-premium Chinese white spirits and look forward to working with them  as we grow our position in this exciting category.'

Vermilion Partners acted as lead adviser to Diageo.  UBS Investment Bank and CITIC Securities also advised on the transaction.

ENDS

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Notes to editors:

ShuiJingFang is the fourth largest super premium Chinese white spirits brand by volume in China. The company is currently listed on the Shanghai Stock Exchange (600779).

Diageo made its first 43% investment in Quanxing in February 2007 and increased its shareholding to 49% in July 2008. Since then, Diageo has begun distributing the ShuiJingFang portfolio across South East Asia, Korea and Australia and has also launched the super premium vodka Shanghai White in Hong Kong, Macau and select duty free outlets.

The maximum consideration payable in the MTO of £609 million is calculated as follows: offer price x maximum number of shares that can be tendered / by GBP/RMB exchange rate: RMB 21.45 x 294.5 million shares/10.37 being the current exchange rate. The MTO price is the regulatory minimum price set at the arithmetic average of the volume weighted average price for each of the 30 trading days prior to the Indicative Announcement made on 1 March 2010.

Vermilion Partners Limited is a leading, independent, cross-border investment banking advisory firm in China.  www.vermilion-partners.com

Available documents

ShuiJingFang shareholders are urged to read any documents regarding the MTO as they become available, because they will contain important information about the offer. Investors will be able to obtain a copy of such documents from ShuiJingFang's website: http://www.swellfun.com.

Forward-looking statements

This document contains 'forward-looking statements'. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook and projections with respect to future matters, including overall market trends, the availability or cost of financing to Diageo, anticipated cost savings or synergies, the completion of Diageo's strategic transactions and general economic conditions. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo's control. All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the 'risk factors' contained in Diageo's annual report on Form 20-F for the year ended 30 June 2010 filed with the US Securities and Exchange Commission (SEC). Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo's expectations or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Diageo may make in documents it publishes and/or files with the SEC. All readers, wherever located, should take note of these disclosures. The information in this announcement does not constitute an offer to sell or an invitation to buy shares in Diageo plc or any invitation or inducement to engage in any other investment activities. Past performance cannot be relied upon as a guide to future performance.

 

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