According to Wall Street Journal, Diageo PLC is close to acquiring Mey İçki of Turkey for between $2 billion and $2.5 billion, people familiar with the matter said, a deal that would give the U.K. alcohol giant access to a vast distribution network in the fast-growing nation. TPG bought the previously state-owned company for about $800 million in 2006. This would be a very sweet 3x exit for TPG in just about four years.
Barring a last-minute snag, the deal is set to be announced Monday, the people said. Mey's owner, U.S. private-equity firm TPG Capital, had been considering an initial public offering for the business.
Diageo and other foreign liquor companies have been in a six-year customs dispute in Turkey, which caused Diageo to halt shipments to the country for the past six months. Liquor importers have been asked to pay more customs tax on spirits imported into Turkey between 2001 and 2009. Diageo's custom-tax bill could exceed £100 million, or about $160 million, according to the company's annual report.
But the dispute appears to be approaching a resolution, recently approved by the Turkish Parliament, and that likely helped convince the London-based company to go forward with the Mey deal. Diageo said the Turkish government announced a proposed restructuring of the country's public receivables law in November 2010, a move that the spirits giant says should pave the way to a settlement of the outstanding tax claim.
Diageo and many other big Western companies are eager to push into faster-growing developed markets around the world.
Buying Mey would hand Diageo a dominant brand and greatly expand its footprint in Turkey, which the company could then use to sell more of its flagship products, such as Johnnie Walker whisky.
Mey has access to roughly 50,000 retail outlets in the country and a nearly 80% share of the Turkish market for raki, an alcoholic beverage considered the national drink. Mey also produces vodka and gin, as well as flavored liqueurs.
Besides Johnnie Walker, Diageo's products include Tanqueray gin and Smirnoff vodka. Roughly two-thirds of its sales come from the developed world, and the company is intent on shifting that balance.
With cash flow running at more than £3 billion a year, analysts have been eager for signs of its acquisition strategy. Besides Mey, much speculation has centered on the big liquor portfolio of Fortune Brands Inc. of the U.S., which is in the process of splitting up.
Diageo hasn't mounted a major acquisition in some 10 years. But lately it has shown a fondness for expanding in spirits in developing markets. As part of a joint venture in China for example, Diageo produces the Shui Jing Fang brand of baijiu, a white spirit that the company says accounts for half of China's alcoholic-beverage consumption by volume.
For TPG, Mey likely will produce a strong return. TPG bought the previously state-owned company for about $800 million in 2006.
Diageo is being advised by UBS AG on the deal.
J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. are advising TPG.
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