Diageo buys into top Chinese liquor maker

SHANGHAI, Dec 12 (Reuters) Diageo Plc, the world's top alcoholic drinks group, is buying 43 percent of a major Chinese liquor maker in an effort to boost its presence in the country's fast-growing market.

Through the acquisition, the British maker of Smirnoff vodka, Johnnie Walker whisky and Guinness stout enters the market for baijiu -- a powerful grain and sorghum-based alcohol which means ''white liquor'' in Chinese.

Diageo has signed an agreement with Chengdu Yingsheng Investment Holding to buy the stake in Sichuan Quanxing Group, said its Shanghai-listed unit, Sichuan Quanxing Co. Ltd., which makes the popular Swellfun-brand liquor.

Diageo will indirectly own 16.9 percent of listed Quanxing after buying into Quanxing Group, which owns 39.23 percent of the Chinese listed company with a total market value of $816.12 million, according to Reuters Estimates.

It did not provide financial details of the transaction.

Diageo and French rival Pernod have long sought to expand in China, where 35 billion litres of beer, wine and spirits were consumed last year, according to Euromonitor data.

Sales of alcoholic drinks reached $416 billion in China in 2005, 8 percent more than in the previous year, the data showed.

Shanghai-listed shares in the Chinese distillery were off 4 percent at 12.54 yuan at 0604 GMT, since news of the deal had already leaked and investors locked in profits as the acquisition was made public, an analyst said.

''Quanxin shares dropped today right after the firm released the foreign investment news. It's a market reaction on the intransparency of information,'' said Zhou Fengwu at Oriental Securities.

Shares in the firm had jumped 48 percent by Monday's close since a two-day trading suspension from Oct. 13 after reports in domestic media that the firm may be an acquisition target.

Sichuan Quanxing said on Oct. 18 that it was in talks with several international makers of alcoholic drinks to discuss matters such as overseas sales.

The listed company, based in Chengdu, capital of southwestern Sichuan province, in April posted 77.8 million yuan ($9.9 million) in 2005 profits on 604 million yuan in revenues.

($1=7.835 Yuan) REUTERS PV HS1455