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February 24, 2010

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Diageo eyes bigger stake in spirit firm

CHINA'S leading spirit maker, Sichuan Swellfun Co, suspended trading for a second day yesterday on market speculation its foreign shareholder Diageo Plc would raise its stake in Swellfun's parent.

Sichuan Swellfun, one of the oldest Chinese distillers of the white spirit known as "baijiu," said parent company Sichuan Quanxing Group was in talks to deepen cooperation with its foreign counterpart, according to a statement at the Shanghai Stock Exchange yesterday.

Industry analyst Tong Xun from Shenyin & Wanguo Securities Co said the deal may involve Diageo's interest in raising its stake in Quanxing to over 50 percent.

Diageo, the world's largest liquor maker, made its first acquisition in China by buying a 43 percent stake in Sichuan Chengdu Quanxing Group in 2006, a move which also allowed it to indirectly own a 16.9 percent stake in Swellfun.

Diageo then raised its stake in Quanxing to 49 percent and became its second-biggest shareholder.

Last September, Swellfun issued a similar statement, saying both shareholders were in talks about further cooperation. But later Swellfun said the matter under discussion failed to materialize.

A securities official from Swellfun declined to comment yesterday.

Overseas beverage makers including Diageo and AB-InBev are speeding up acquisitions in China on expectation that rising incomes will increase the demand for alcohol.

London-based Diageo, whose brands include Johnnie Walker whisky and Guinness, holds about a 30 percent market share of the global alcohol market.

Chen Chen, an analyst from Shenzhen Zhongzhe Investment Consulting Ltd, said the increased stake in Quanxing would help Diageo better compete with its rival Pernod Ricard Group in China.


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