A salesman promoting Swellfun products to a customer at an exhibition in Beijing. JI GUOQIANG/ CHINA FOTO PRESS
SHANGHAI - Shares of premium liquor maker Sichuan Swellfun Co surged by the daily limit in Shanghai trading after Diageo Plc said it plans to buy out the Chinese company for 610 million pounds ($907 million).Swellfun jumped 10 percent to 23.74 yuan on Tuesday, the biggest gain since Nov 30, while China's benchmark Shanghai Composite Index fell 0.53 percent. The stock has gained 3.6 percent this year.
Diageo plans to raise its stake in Swellfun's parent to 53 percent from 49 percent, which would make it the listed unit's controlling shareholder and require an offer for all shares the London-based company didn't own. That offer would be made after Diageo won regulatory approval to buy the stake in parent Chengdu Quanxing Group and be at a minimum price of 21.45 yuan for each Swellfun share.
The maker of Smirnoff vodka and Johnnie Walker whisky "can use Swellfun's distribution network to boost its own liquor sales in China", Qu Jia, a beverage analyst at First Capital Securities Co, said in a phone interview on Tuesday. Diageo will "very likely get government approval" for its plan to boost its stake in Chengdu Quanxing, said Qu, who rates Swellfun "add".
The world's largest distiller is expanding in Asia and Diageo's chief financial officer Nick Rose last year said in an interview that India and China are "two places that over the long haul we want to be really strong in".
The company also produces liquors including Captain Morgan rum, Jose Cuervo tequila and J&B whiskey.
Diageo paid 202.9 million yuan ($29.7 million) for a 43 percent stake in Chengdu Quanxing in 2007 then increased its holdings to 49 percent in July 2008. The company said it agreed on Monday to pay 14 million pounds for an additional 4 percent stake in Chengdu Quanxing, raising its stake to 53 percent.
Swellfun, Kweichow Moutai Co, Wuliangye Yibin Co and Luzhou Laojiao Co are China's four makers of premium baijiu or "white liquor", First Capital's Qu said. Baijiu is traditional Chinese liquor produced from sorghum. Swellfun's liquor has its origins more than 600 years ago in China.
The Chinese government has served baijiu to visitors including Richard Nixon, former UK Prime Minister Margaret Thatcher and former Democratic People's Republic of Korea leader Kim Il -sung. A 500-milliliter bottle of Swellfun baijiu that is 38 percent alcohol sells for about $68 each.
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