DESPITE PREVIOUS LOSSES, DIAGEO OFFERS 20% PREMIUM TO UP SHUIJINGFANG STAKE TO 70%
By Susan Lewis
Global wine and spirits giant Diageo is seeking to increase its holding in Sichuan Shuijingfang (SJF), a Chinese baijiu company, to 70% from the current 60% stake.
The offer price is RMB45 (USD6.70) per share at a total cost of approximately RMB 2.19b (USD327.3m). The offer represents a premium of 19.33% over the market price of RMB37.7 traded on 26 February, the day before the offer was announced.
The offer period will run for 30 days from 5 March to 3 April. This is the second time within a year that Diageo has sought to increase its holding in the Chinese baijiu company.
Last year, Diageo successfully increased its equity in the company from 39.71 percent to a controlling 60 percent stake at a price of RMB61.5 per share (USD9.16).
Since then, SJF share price had once dipped to levels as low as RMB30 (USD4.47).
Despite having made a big loss from the last offer, analysts said the substantial premium Diageo is prepared to pay in the current offer reflected its confidence in the company and the China’s baijiu market.
Analysts also believed that Diageo is interested in SJF’s distribution network, as a direct route to the Chinese market for the other brands in its portfolio.
The company is the manufacturer of the Shui Jing Fang brand of baijiu, a grain-based liquor made from sorghum and other grains. The company’s distillery is one of the oldest in China, operating continuously since 1408.
On a call with analysts late last year, Diageo's Greater China & Asia Pacific regional president, Sam Fischer, praised the performance of the Shui Jing Fang brand.
It was said the baijiu brand was on course to increase its sales by 40% in the calendar year. Growth was said to have come from a change of focus towards younger consumers through the launch of Shui Jing Fang Number 8, an entry level style that targets more casual occasions.
According to Fischer, Number 8 has delivered "a significant share" of Shui Jing Fang's overall growth over the past two years.
(the writer can be contacted at: SusanLewis@thewinechronicle.com)
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