March 20, 2012 / 5:07 PM / 6 years ago

Diageo gets go-head to launch Chinese tender offer

LONDON, March 20 (Reuters) - British drinks giant Diageo on Tuesday won China’s approval to launch an offer for the shares it does not own in Chinese white spirits group Sichuan Shuijingfang, and set the offer at the minimum level which is unlikely to encourage take-up.

The maker of Johnnie Walker whisky and Smirnoff vodka is required to launch the offer under Chinese rules, but the British group has said previously it was not looking for a full takeover and has set the tender offer at 17.16 percent below Shuijingfang’s last closing share price.

The Chinese move is part of Diageo’s strategy to increase the proportion of its sales in emerging markets to 50 percent by 2015 from just under 40 percent currently. The super premium Chinese white spirits market, where Shuijingfang’s business is focused, is one of the world’s fastest growing spirits sectors and an area in which Diageo is keen to expand.

The London-based group agreed to buy an additional 4 percent in its joint venture Sichuan Chengdu Quanxing last July to bring its stake to 53 percent, while Quanxing itself holds the largest stake of 39.7 percent in Shuijingfang, China’s fourth-largest white spirits group.

Under Chinese rules, the change in control of Quanxing requires Diageo to make a mandatory tender offer for all 60.3 percent of the outstanding shares in Shuijingfang, which is listed as Sichuan Swellfun.

Diageo has set the mandatory tender offer at 21.45 yuan a share, the minimum permitted by Chinese takeover rules, and some 17.16 percent below the share closing price on March 19.

Last summer, Diageo said it was not its intention to seek full ownership of Shuijingfang as it saw benefits in working with Chinese shareholders, but it did have the resources to fund the offer if needed.

If all Shuijingfang shareholders accept the offer then the maximum amount payable would be around 6.3 billion yuan or 630 million pounds, Diageo said in a statement.

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