British liquor giant Diageo has offered to sell most of Whyte & Mackay — the Scotch whisky maker it now owns through its acquisition of India’s largest liquor company United Spirits (USL) — after the UK’s Office of Fair Trading (OFT) raised competition concerns arising from the acquisition. The consumer and competition authority said on Monday that it was studying Diageo's proposal to sell the entire business except two malt distilleries.
“These companies are two of the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers. Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers,” Chris Walters, OFT chief economist and decision-maker in this case, said in a press release. “We are now considering Diageo's offer to sell the bulk of the Whyte & Mackay business with the exception of two malt distilleries, to address our concerns.”
Analysts, who anticipated this situation ever since the Diageo and United Spirits deal was struck last November, reckon that a sale could ease the pressure on USL's balance sheet brought on by the Whyte & Mackay purchase in 2007. USL had a net debt of Rs 7,167 crore as on September 30, after repaying as much as Rs 1,857 crore from the proceeds of the issue of preference capital and the sale of shares to Diageo.
Vijay Mallya had bought Whyte & Mackay (W&M) for 595 million pounds sterling in 2007, a move which gave USL access to large Scotch reserves for its blended whiskies. He also swung the distiller's focus over the last five years towards reducing the bulk spirits business and developing its own brands such as Dalmore and Jura. “It (W&M) has not been very profitable. If they can monetise the assets and reduce debt, it will be good for USL,” said V Srinivasan, research analyst with Angel Broking.
Diageo had completed its acquisition of 25.02% stake in USL for Rs 5,235 crore in July, giving it control over W&M. The British firm had said last week that it could not acquire an outstanding 2.38% stake within Sebi's prescribed time frame as it was facing an issue over getting these shares released from the pledge holders. USL has now moved the Karnataka High Court seeking relief.
“A number of