Before the Office of Fair Trading in UK said Diageo’s acquisition of a majority stake in United Spirits of India is anti-competitive, the Competition Commission of India (CCI) had ruled the deal was kosher.
The brakes applied by the UK regulator now forces Diageo to offer to sell Whyte & Mackay (part of the United Spirits) so that the concern over the deal is addressed. The issue, however, raises a question: Why did the CCI not take the issue up while granting approval to the deal?
Experts say the different market scenarios of blended whisky in India and the UK made for the opposing conclusions. While UK is a large market for the blended Whisky segment which Whyte & Mackay operates in, the market of such products in India is still very small. According to industry insiders, blended whisky accounts for less than 5 per cent of the Indian liquor industry.
Diageo has around 1 per cent market share in India and even Whyte & Mackay has a small share while in the UK, both Diageo and Whyte & Mackay are large players and therefore the issue has caught the regulators eye. To be fair to the CCI, these issues were discussed by it in its order. But as noted, the differing size of the players vis-a-vis the markets meant the competition regulator was more hospitable in India to the deal.
But as expected, the stock markets have reacted to the concerns raised by the UK regulator. Share prices of United Spirits that had risen by over 40 per cent since February on favourable movement of the deal, saw a fall by up to 10.5 per cent on Tuesday before recovering later to close the day at Rs 2,581 to end the day with a fall of 1.5 per cent.
Sandeep is a senior assistant editor based in New Delhi.