Mey Içki is a big spirits producer and distributor in Turkey with a turnover of £300m (2010 figures) and an EBIT of £120m. According to Diageo, it has around a 70 per cent share of the local spirits market and is the clear market leader in Raki – the biggest spirits category in Turkey.
For Diageo buying Mey Içki is therefore an opportunity to exploit growth opportunities in the local market. In addition, the deal gives the company a distribution network that it can use to sell its own brands.
Paul Walsh, Diageo CEO, said the company is therefore looking for an “uptick” in its premium international spirits sales in Turkey.
Walsh said that Turkey is an attractive, growing market for Diageo. It offers margin expansion and top-line growth above the company average, according to Walsh.
However, over the past year Diageo has struggled in Turkey because of a customs dispute impacting the importation of its products.
During a conference call, Diageo Europe president Andrew Morgan told analysts that a settlement had been negotiated and that it expects obstacles to importation to be progressively removed.
Another area of concern for analysts was taxation. Morgan said Diageo is confident that a recent tax hike was “a catch up” and that the company does not anticipate tax increases to be a problem going forward.
Turkey is a substantial fast growing economy with a growing and increasingly affluent middle class and consumer spending is forecast to be twice the rate of GDP growth.
Other emerging markets
The acquisition could be followed by others as Diageo looks to deepen its position in fast growing international markets.
“This investment represents the continuation of our strategy to increase Diageo’s presence in those emerging markets, such as China and Vietnam, which have a rapidly growing middle class,” said Walsh.
Walsh said in the conference call that Diageo continues to be “highly interested” in brands and businesses that offer routes to market in emerging markets.
The Mey Içki transaction is expected to close in the second half of 2011.