Diageo has been in charge of Shuijingfang for 12 years What about good internationalization?

Only half a year after the closing of the last tender offer, Shuijingfang (600779. SH) foreign controlling shareholder Diageo has started the rhythm of "buying, buying and buying".

On the evening of February 27, Shuijingfang announced that GrandMetropolitan InternationalHoldingsLimited, a wholly-owned subsidiary of Diageo, intends to increase the proportion of its direct and indirect total shares in listed companies from the current 60.00% to a maximum of 70.00% through a tender offer. The Tender Offer price is RMB45.00 per share.

This is the third time that the foreign shareholder Diageo has made a tender offer to Shuijingfang. From the beginning of the curve into the shares, to the holding, and then to the absolute control of Shuijingfang, Diageo has gone through a long twelve-year period, during which Diageo's transformation of Shuijingfang has gone through a difficult run-in period. However, the style of the old British liquor companies has gradually left a mark on Shuijingfang.

Foreign investors have also been dissatisfied

It wasn't until 2007, when Curve took a stake in Shuijingfang, that Diageo began to truly control the company.

But for the foreign liquor giant, it was not the best time to enter the house at that time. Due to the weakness of the general environment, the liquor industry has been booming in the golden decade, and the situation has turned around.

In 2013 and 2014, Shuijingfang fell into a loss for two consecutive years, and the stock was on the verge of delisting. In addition, foreign shareholders and the original management team of Shuijingfang are at the moment of power transfer, and the difficult run-in also brings pressure to Shuijingfang's performance.

Due to the poor performance of Shuijingfang, the "foreign executives" in charge of Shuijingfang were once replaced like marquees. For a long time, foreign executives were in charge of Shuijingfang, and they were also questioned by "water and soil dissatisfaction".

In the second half of 2015, Shuijingfang decided to launch a management team led by Chinese executives. In October of that year, 58-year-old Hong Konger Fan Xiangfu was appointed as the company's general manager. Fan Xiangfu has served as an executive in Heineken China and Carlsberg China, and has been immersed in the beer industry for many years. Under the leadership of Fan Xiangfu, Shuijingfang carried out drastic reforms within the company, including reorganizing the company's product line and reorganizing dealer channels. At the same time, Shuijingfang also began to re-conquer the road of high-end liquor.

In 2017, Shuijingfang achieved revenue of 2.048 billion yuan for the whole year, the highest revenue in history.

Where will it go after the increase in holdings

In August 2018, the tender offer to acquire Zhongdiagio spent nearly 6.1 billion yuan of "real money and silver" to complete the absolute control of Shuijingfang, and the proportion of shares held in Shuijingfang increased from 39.71% to 60%.

If the tender offer is successful, Diageo's shareholding in Shuijingfang is expected to reach 70%. The maximum total amount of capital required for the Tender Offer is approximately $2,199 million. The funds required for the Tender Offer will be derived from the Acquirer's own and self-financed funds. The cost of this acquisition is still not cheap.

However, judging from Theragio's report, it is not short of money. On the eve of the announcement of the tender offer to buy Shuijingfang, Diageo disclosed its 2019 interim report showing that in the six months ended 31 December 2018, Diageo's global net sales were £6.9 billion, an increase of 5.8% year-on-year. Cash flow continued to be strong, with net cash from operating activities of £1.6 billion, up £356 million year-on-year.

Diageo's liquor business is mainly Shuijingfang. According to the above semi-annual report, Diageo's organic net sales in Greater China increased by 20% thanks to the growth of Johnnie Ginja and Shuijingfang.

It is worth mentioning that in 2018, the tender offer to acquire Shuijingfang, Diageo's book has not yet floated profits. At the time of the acquisition, Shuijingfang's stock price was at its peak, and the offer price per share was 61.38 yuan. In the past few months, the stock price of the entire liquor sector has ushered in a wave of adjustment. As of February 26, 2019, following the market, the closing price of Shuijingfang per share was only 37.71 yuan.

Some industry views believe that this move is both the purpose of diluting the cost of Diageo's high premium increase in Shuijingfang half a year ago, and the intention of optimistic about the prospects and market space of the domestic liquor industry. Cai Xuefei, an analyst in the liquor industry, told the first financial reporter that Diageo should take into account that Shuijingfang's own performance is acceptable and there is a certain room for growth. Diageo remains bullish on the growth potential of China's overall consumer goods.

Under the intensive tender offer, where will Diageo take Shuijingfang again?

In recent years, the entire liquor industry has launched a new round of internationalization, including Moutai, Wuliangye, and Luzhou Laojiao, competing to lay out the "going to sea" road and sell liquor abroad. On the contrary, Shuijingfang's international expansion is somewhat "stationary". Not only that, in public activities, it is basically impossible to see the phenomenon that Diageo helped Shuijingfang "stand". As a world-renowned liquor group, Diageo products are sold in more than 180 countries and regions around the world. Relying on the strong sales network of the major shareholders, Shuijingfang should have an innate advantage in the layout of internationalization. Shuijingfang's 2017 annual report shows that Shuijingfang's annual revenue is 2.048 billion yuan, and its export income is only 30.6449 million yuan.

"At present, the internationalization proposed by various liquor companies is not really 'internationalization', but more of a brand publicity, and the overall situation has not seen a great increase in sales." In Cai Xuefei's view, "the internationalization of liquor is not an easy task in itself. Diageo's international support for Shuijingfang is actually supported by a lot of global networks, including global logistics systems and warehousing systems. Due to the small body volume of Shuijingfang, the brand power is still relatively weak, and it is not easy for outsiders to perceive. ”

In its own official introduction, Diageo said that it is committed to bringing China's high-end liquor brand Shuijingfang into the international market. After the offer to buy Shuijingfang this time, will Diageo take action? Still unknown.