Diageo bets big on Turkey, acquires local company for £1.3 billion

Diageo Brand Johnnie Walker - Eyeing Turkey's Booming Middle Class

Diageo Brand Johnnie Walker – Eyeing Turkey’s Booming Middle Class

Diageo Plc., the world’s largest spirit maker has agreed to buy Turkish company Mey Icki for £1.3 billion to get a foothold in the fast growing southeast European nation.

The Turkish company has an 80 percent market-share in the top selling local aniseed flavored spirit raki and is a leader in locally made vodka, making it the biggest domestic company.

“Turkey is an attractive, growing market for Diageo, with strong GDP growth. The acquisition of Mey Icki transforms our existing position in this fast-growing spirits market”, said Diageo chief executive Paul Walsh after the deal.

The London based maker of Johnnie Walker brand Whiskey and Smirnoff Vodka is buying the stakes from private equity group Actera and TPG Capital LP, to capitalize on the local demand boom for raki and vodka and tap into Mey Icki’s distribution network.

“Turkey is seeing rapid growth of its middle classes, so there is growth in local raki and vodka, while the deal provides a fantastic platform for Diageo’s international brands in Turkey”, said Andrew Morgan, head of Diageo’s Europe business.

The company hopes to settle local tax issues that delayed the deal, in the next few weeks. The Turkish parliament has agreed to a tax amnesty on imports covering spirit companies between 2001 and 2009, and Diageo expects a favourable settlement on the issue, Morgan said.

“Diageo’s acquisition of Turkey’s Mey Icki looks both financially and strategically sound. At less than 10x historic EBITDA the valuation looks reasonable”, said Jamie Isenwater – an analyst with Deutsche Bank’s brokerage arm.

The acquisition cost works out 9.9 times of 2010 EBITDA (Earning Before Interest, Tax, Depreciation and Amortisation). The company had posted an operating profit (EBIT) of $120 million on revenues of $300 million. Mey Icki enjoys 70% market share in Turkey.

The acquisition will be accretive by 1 percent for the full year for Diageo. The company’s cost saving will be minimal since it has a small presence in the local market selling J&B and Johnnie Walker whiskies. Cost saving will be around £50 million a year, analysts believe.

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