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UK Drinks Company Diageo acquire major share in Sichuan Quangxing Group

BritCham / CBBC
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According to press reports British drink group Diageo, owner of brands including Smirnoff, Guinness and Jonnie Walker, have acquired an additional stake in Quanxing Group, taking its shareholding to 53%

Diageo made its first investment in Quanxing in 2007 when it made a 43% investment in the group, and later increased this to 49% in July 2008. The recent acquisition of an additional 4% for USD 22 million USD takes the company’s shareholding to 53%, giving it direct control of one of China’s most famous liquor producers, Shuijingfang. Shujingfang is maker of a popular brand of baijiu, a spirit which currently accounts for more that 30% China’s total alcoholic drinks market. The transaction is thought to be positive step in helping the Chinese spirit market develop internationally; especially as it is one of the world’s largest and fastest growing markets.

The deal is the first time a foreign company has acquired control of such a famous Chinese brand under the current Anti- Monopoly Law. It represents an important step for investment in major sectors of the Chinese economy and a test for China’s approach towards foreign investors. The decision differs to that of the Coca-Cola proposed acquisition of juice producer Huiyuan in 2009, which was blocked by MOFCOM on competition grounds and fueled concerns that the Anti-Monopoly Law would be used to deter the takeover of Chinese businesses.

The decision is significant in the sense that it could lay the groundwork for further foreign acquisitions in major sectors in the future. Despite setting a tone for a somewhat open policy, certain aspects of the deal need to be taken into consideration.
As the decision was announced upon Wen Jiabao’s recent visit to the UK, this indicates that government relations played an important role in finalizing the deal. Similarly, earlier informal divestment of the Quanxing brand appears to have paved the way for MOFCOM’s final approval to be granted without any conditions attached, suggesting that acquisitions by foreign investors are still sensitive areas of China’s merger control process.

Source: DLA Piper Litigation and Regulatory Group

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