Diageo Plc. (DEO) acquired Turkey’s biggest spirit company Mey Icki Sanayi ve Ticaret for $2.11 billion cash. Liquor Group Wholesale will distribute the products of the newly formed Diageo Mey Icki portfolio with the help of its privately held state level distribution network for the initial two years.
Londonbased Diageo acquired the Turkish distillery and their entire portfolio of products from the U.S. based private equity firms TPG Capital and Acterar. Existing cash resources and debt will be used to fund the buyout. It will be accretive to earnings by approximately 1% per share in the first year and the buyout would reap some profit only after five years from the time of completion. The deal is expected to be completed in the second half of the fiscal year.
The signature brand of Mey Icki, Binboa Vodka has already reached the US shores. The first few containers of leading vodka brands in terms of market share are being channeled through the State Level Customer Distribution Channels of Liquor Group and are being registered for sale in various states from where it would move out to the end consumers.
The acquisition will transform Diageo’s presence in Turkey and will help it become market leader in major local brands like raki and vodka. In turn it will give an opportunity to Diageo to boost its own sales of international brands like Johnny Walker whiskey and Smirnoff vodka in Turkey through Mey Icki’s network. According to sources Diageo is also considering rapid expansion of middle classes coupled with growth in consumption of raki and vodka in Turkey. Mey Icki had net annual sales of $486.9 million in 2010 and earnings before interest and tax of $194.7 million.
Diageo Plc. is the world’s largest producer of spirits and a major producer of beer and wine and owns brands like Smirnoff, Johnnie Walker, Jose Cuervo, Baileys and Guinness. It also has 34% stake in Moet Hennessy, which owns brands including Moët & Chandon, Veuve Clicquot and Hennessy. It sells its products in approximately 180 countries and has offices in 80 countries.
Mey Icki produces alcoholic beverages in Turkey. Its products include vodka, gin, cognac and brandy, raki, liquor, wine, beer, whisky, and vermouth. The company was founded in 2004 and is based in Istanbul, Turkey.
Diageo, which competes with SABMiller plc., is expanding its presence globally by joining hands with local spirit giants in several rapidly developing countries. With a craving for bolt-on acquisitions in emerging markets, the company is preparing to have a stake in China’s Sichuan Chengdu Quanxing Group. As part of a joint venture agreement, Diageo produces the Shui Jing Fang brand of ‘baijiu’, a white spirit that constitutes half of China’s alcoholic beverage consumption by volume.
Recently, in January 2011, Diageo entered into a strategic partnership agreement with Hanoi Liquor Joint Stock Company (Halico) in Vietnam. In addition, Diageo has agreed to acquire a 23.6% stake in Halico from Vina Capital Vietnam Opportunity Fund Limited.
Currently, we maintain a ‘Neutral’ rating on the stock. Further, Diageo holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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