Is Diageo interested in gobbling up Halico?

If Diageo is still interested in acquiring the rest of Halico, the time is right

In mid-April, the State Securities Commission of Vietnam (SSC) approved Halico to list on the Unlisted Public Company Market (UpCOM) with the code “HNR.” Currently Habeco holds 54.3 per cent and Diageo 45.5 per cent in Halico.

The listing is generally considered as part of Habeco’s plan to divest Halico due to its bleak business results.

Halico was considered Vietnam’s leading domestic branded spirit producer with the No.1 Vodka brand Vodka Hanoi.

The firm reported soaring revenue in 2008-2011, with 2011 revenue reaching a record VND1.067 trillion ($46.86 million) thanks Diageo’s investment.

Notably, in early 2011, Diageo Plc.—a British multinational alcoholic beverages company—spent VND800 billion ($35.14 million) acquiring 18.67 per cent stake in Halico from VinaCapital for the share price of VND213,600 ($9.38).

In mid-2012, Diageo increased its holding in Halico to 45.5 per cent via buying an additional 26.83 per cent stake from VinaCapital and became the second largest shareholder of Halico, following Habeco (54.3 per cent).

Based on the value of Halico’s shares at the time, Diageo spent at least VND1.94 trillion ($85.2 million) throughout the two deals. At the time of the second deal, Halico’s market capitalisation was VND4.3 trillion ($188.87 million).

Acquiring a large stake in Halico was to take advantage of its growth potential and success to increase its sales in the fast-growing Vietnamese market.

According to the agreement, Diageo would assist Halico in enhancing its capabilities across a range of functions, including innovation, branding, as well as supply and distribution, focusing on the Vodka Hanoi brand.

It would continue to independently operate its own premium spirits range in the country, including Johnnie Walker, Smirnoff, and Baileys, under its subsidiary Diageo Vietnam.

However, in reality, after Diageo got on board, Halico ran into hard times. Notably, in September 2012, the firm was detected to be smuggling and evading tax, for which it was taken to court.

In 2014, the company reported a revenue of VND397 billion ($17.4 million) and profit of VND30 billion ($1.3 million) only. In 2015, business result deteriorated even further with the reported loss of VND21 billion ($922,426). As of the end of 2017, the firm reported a consolidated loss of VND255 billion ($11.2 million).

After falling from grace,Halico’s shares will likely be valued at a much lower price than the price at which Diageo bought in. The question is whether Diageo is interested in acquiring the remaining stake in Halico at this lower cost?