Diageo acquires Turkish spirits major for £1.3bn

The drinks giant Diageo is to acquire Turkey's biggest spirits company for £1.3bn, reinforcing its strategy of targeting fast-growing emerging markets. Diageo is buying Mey Icki from the private equity firms TPG Capital and Actera and said the deal would be earnings enhancing in the first year. Mey Icki, which has 70 per cent of the spirits market in Turkey, is the country's biggest maker of vodka through its Binboa and Istanblue brands.

Paul Walsh, the chief executive of Diageo, said: "We believe this is a great opportunity for Diageo and it furthers our strategy to increase our presence in the emerging markets [such as China and Vietnam]. Turkey is a high growth market with strong GDP growth and an increasingly affluent middle class."

Rising incomes among this group mean that consumer spending in Turkey, which has a population of 74 million, is forecast to grow at double the rate of economic output. Diageo will use its distribution network to sell more of its own brands in Turkey.

Mr Walsh said: "Mey Icki is a high growth, high margin business and it gives Diageo a superior distribution network for the growth of our premium brands." Diageo's brands include Johnnie Walker, Smirnoff, Baileys, Captain Morgan, Tanqueray and Guinness.

Mr Walsh described the enterprise value price of £1.3bn paid for Mey Icki as "attractive". Diageo is paying an underlying earnings multiple of 9.9.

It expects to complete the acquisition in the second half of 2011. Mr Walsh declined to comment on speculation Diageo could make a bid for some, or all, of the drinks brands of the Fortune Brands group. Pernod Ricard has also been linked with a potential bid.

Diageo grew pre-tax profits by 16 per cent to £1.61bn for the half-year to 31 December, on net sales up by 4 per cent to £5.32bn. However, its performance varied markedly between different geographies, with operating profits falling in Europe, but growing at its North America, international, and Asia Pacific divisions.

Turkey's delight for Raki

* Raki, a strong white spirit flavoured with anise, accounts for 80 per cent of the spirits consumed in Turkey, and – legally, at least – was only made by the state alcohol and tobacco monopoly Tekel. Mey Icki, which bought the business from Tekel in 2004, was sold to the US private equity group TPG for $810m (£506m) in 2006. Like the French pastis and Greece's ouzo, the national drink of Turkey, which has an average alcohol content of 45 per cent, turns milky when water or ice is added, earning it the name "Lion's milk" in Turkey.