Diageo splashes out £1.3bn as European spirits slump

Drinks giant Diageo has splashed out £1.3billion snapping up Turkey's biggest spirit maker in a desperate attempt to offset weak performance in downturn-hit Europe.

The world's biggest drinks group - maker of Smirnoff vodka, Johnnie Walker whisky and Guinness - bought Mey Içki which controls 80 per cent of the market for Turkey's popular aniseed-based drink, raki.

It also produces local vodka and while the acquisition will not buy Diageo an international brand it gives the firm its first significant exposure to the country. Diageo exports small quantities of whisky and vodka to the country so will not have any competition issues. However, it also will not benefit from any cost savings.

Turkey's consumer spending is forecast to grow at double the rate of economic growth and Diageo needs rebounding emerging market sales to offset poor performance in Europe.

Turkish delight: The world's biggest spirits group has bought Mey Icki for £1.3billion

Turkish delight: The world's biggest spirits group has bought Mey Icki for £1.3billion

Private equity-backed Mey Içki, which was formed from privatisation of Turkey's Tekel in 2004, pushed the button for a public listing four weeks ago.

But Diageo, which first expressed interest in buying the Turkish firm last year, derailed the float process with its £1.3billion bid. Chief executive Paul Walsh reached an agreement with owners TPG and Actera saying that the acquisition will also allow Diageo to accelerate the growth of its international spirits brands into the country.

Mey Içki has an extensive nationwide sales and distribution network which Diageo (level at to 1200p) hopes will help it cash in on the growing number of Turkey's middle class, who have aspirations to drink top brands.


Walsh said: 'Turkey is an attractive, growing market with strong GDP growth. This investment represents the continuation of our strategy to increase Diageo's presence in those emerging markets, such as China and Vietnam.'

Last week Walsh said halfyear sales for Europe had fallen 3pc, as in crisis-struck Ireland hard-up drinkers could not afford to hit the bottle or even the pub with sales of Guinness down 8 per cent.

It was a similar story in Greece and Iberia, where net sales fell 38 per cent and 14 per cent respectively.

Jamie Isenwater, an analyst at Deutsche Bank, said: ' Diageo's acquisition of Turkey's Mey Içki looks both financially and strategically sound.'

Diageo aims to resolve tax issues that had delayed a deal and is funding the acquisition through cash and debt.