Guinness-owner Diageo is said to weigh options for China assets including sale

[LONDON] Diageo is considering options for its Chinese assets, including potential divestments, people familiar with the matter said, as the maker of Guinness and Johnnie Walker seeks to streamline its portfolio.

Diageo is working with Goldman Sachs Group and UBS Group to review its operations, which include a more than 63 per cent stake in Shanghai-listed Sichuan Swellfun, the people said, asking not to be identified because the information is not public. The advisers have been sounding out initial interest from local strategic buyers and private equity firms, the people said.

Shares in Sichuan Swellfun have dropped 14 per cent in the past 12 months, giving the Chengdu-based company a market value of US$2.7 billion.

Considerations are preliminary and no final decisions have been made, the people said, adding that there’s no certainty that Diageo will decide to proceed with any deal.

Representatives for Diageo, Goldman Sachs and UBS declined to comment. A representative for Sichuan Swellfun said the company hasn’t received any information about a stake sale.

Diageo would join a cadre of global companies reviewing their assets in the world’s second-largest economy amid intensifying competition from domestic players, which have evolved into nimble and sophisticated rivals with deep connections to local consumers.

In November, Starbucks agreed to sell a majority stake in its China business to private equity firm Boyu Capital at a US$4 billion enterprise value, while Restaurant Brands International made a similar move with the local unit of its Burger King chain. Other potential disposals include GE Healthcare Technologies Inc.’s China unit, people familiar with the matter have said.

Diageo’s strategy

Diageo has been trimming its global holdings as falling alcohol consumption has impacted its attempts to get drinkers to trade up to pricier beverages. In December, it agreed to sell a majority stake in East African Breweries to Japan’s Asahi Group Holdings for US$2.3 billion. That transaction is being challenged by a distributor of the Kenyan subsidiary.

Dave Lewis, who was credited with turning round the fortunes of UK retailer Tesco, started as new CEO of Diageo this month. He replaced Debra Crew, who stepped down in July after a challenging two years that saw the company’s shares slump, a profit warning and trade tensions triggered by US President Donald Trump.

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Diageo lowered its full-year outlook for sales and profit in November, blaming weaker demand in the US and lower consumption in China, where anti-extravagance policies have been implemented to curb excess spending by officials. Still, a slight positive change in tone from the Chinese government was encouraging, chief financial officer Nik Jhangiani said at the time. BLOOMBERG