Diageo pays £1.3bn for Turkey’s top spirits company

Diageo, the world’s biggest spirits maker, is to buy Turkish spirits maker Mey Icki for £1.3bn as part of its plan to expand in fast growing markets to offset lower European sales.

The maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout is buying Turkey’s biggest spirits company, which has an 80 per cent share in the country’s top-selling spirit category, the aniseed-flavoured raki. It is also a leading seller of local vodka.

Diageo hopes the business it is buying from private equity groups TPG Capital LP and Actera will help it tap into a local boom in raki and vodka, and boost sales of its own brands through Mey Icki’s network.

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The deal is expected to complete in the second half of 2011.

Diageo said Turkey’s consumer spending is forecast to grow at double the rate of economic growth as the swelling ranks of its middle class aspire to drink quality spirits.

Diageo’s sales in Europe fell three per cent in the six months to December 31, but this was offset by strong growth in emerging markets and north America as pre-tax profits rose 16 per cent to £1.61bn.

Paul Walsh, chief executive of Diageo, said: “The acquisition of Mey Icki transforms our existing position in this fast growing spirits market. It gives us leading brands in the major local spirits categories, a superior distribution network and a proven management team.

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“This investment represents the continuation of our strategy to increase Diageo’s presence in those emerging markets, such as China and Vietnam, which have a rapidly growing middle class,” he added.

The head of Diageo’s Europe business, Andrew Morgan, said the Turkish parliament has recently agreed an amnesty for spirits groups covering a retroactive tax on imports between 2001 and 2009, and he was optimistic the issue would be settled in a favourable way over the next few weeks.

Analysts said it was a useful medium-sized deal that would give it a dominant position in a fast-growing emerging market.

“Diageo’s acquisition of Turkey’s Mey Icki looks both financially and strategically sound,” said analyst Jamie Isenwater at brokers Deutsche Bank.

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Mey Icki had net annual sales of £300m in 2010 and earnings before interest and tax of £120m. The deal will be earnings enhancing for Diageo in the first full year of acquisition by around one per cent.

Diageo said cost savings will be limited as it has a relatively small current business in Turkey, largely selling Johnnie Walker and J&B whiskies. Analysts estimate cost synergies will amount to around £50m a year.

Diageo is also said to be considering buying some of the drinks in Fortune Brands’ spirits portfolio, which includes Jim Beam bourbon, and was recently valued at £6bn. Its rival Pernod Ricard is likewise thought to be mulling an offer.

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