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Thursday, November 8, 2012

Diageo set to take over Mallya’s United Spirits

Mumbai: India-born Ivan Menezes, seen to be the next chief executive at Diageo Plc, is leading the drinks giant on its most significant conquest in emerging markets. Menezes, currently chief operating officer, and his battery of dealmakers are set to clinch a long-rumoured takeover of United Spirits Ltd (USL) from troubled liquor czar Vijay Mallya anytime now. 

    Diageo, makers of Johnnie Walker scotch whiskey and Smirnoff vodka, will take significant ownership and management rights in USL, a Bangalore-based company with more than 50% share of India's branded liquor sales.Mallya will retain a stake and continue as USL chairman. 
    Diageo has called for a meet of its global staff on Friday to explain the implications of the deal. When TOI tried to contact Mallya, we were 
told he was busy in meetings and unable to respond. 
    The deal is arguably the most significant foreign acquisition of some of India's best known consumer brands after Ramesh Chauhan's sale of his soft drinks business to Coca-Cola. 
    Mallya's flagship McDowell's No.1, with retail sales topping $2 billion, is the second largest Indian FMCG trademark after Amul. 
    Diageo has been in protracted talks with USL but negotiations were renewed earlier this year after Mallya's Kingfisher Airlines struggled under mounting debts and losses, which eventually saw the DGCA suspending its flying licence last month. TOI first reported on Diageo re-engaging with Mallya on March 29 this year. 

KFA differs with auditor on Q2 loss 
ingfisher Airlines and its auditor are divided on the Q2 loss suffered by the carrier. While Kingfisher has reported a net loss of Rs 754 crore, its auditor says the loss would have been Rs 1,032 crore had KFA followed "generally accepted accounting standards" instead of a "going concern basis" which banks on resumption of operations and infusion of funds. P 23 Deal to spur Diageo-Pernod duel 
    Vijay Mallya and Diageo's brass were finalizing the final contours of the deal in London at the time of going to press. Diageo's share purchase will peg the enterprise valuation of USL at about $4 billion. The soon-tobe-announced deal will be a complex affair with Mallya remaining the flagbearer of his brands, for which Diageo might actually pay a hefty annual fee, said a banking source familiar with the matter. 
    Diageo and Mallya are said to be working on a web of agreements to protect the latter's financial interests, as one of India's most colourful business tycoons gets ready cede his fam
ily business to a foreign rival. Diageo will be banking on Mallya as it readies a bigger play in one of the most difficult alcoholic beverage markets where tax regimes and trading restrictions are overbearing and fickle. 
    Still, the impending deal will give the British drinks behemoth ownership interest of several market leading brands in the world's fastest growing whiskey market. India's liquor consumption has been reporting more than 10% annual growth in recent years, with premium brands often vaulting at double that rate. 
    Mallya's brands—which include blockbusters like Bagpiper, Royal Challenge and Signature—sell over 125 million cases (of 9 litre each) annually. 
This is six times bigger than its closest rival, Pernod Ricard, in volume sales, even though the latter has emerged as the most profitable in the domestic market. 
    Pernod Ricard's rise signalled Mallya's weakening hold over premium segments, with aspirational middle class consumers gulping down foreign brands more frequently. 
    "Indian liquor companies, including United Spirits, were riding a tiger on volume growth in low margin segment. But persistent cost pressures in recent past made it tougher even as MNC brands began dominating premium segments. Mallya surely needed a partner like Diageo going forward, and debt overhang on 
his other businesses have only hastened this process," said Sanjay Jain, director at Taj capital, a New Delhi-based investment firm which has advised deals in alcobev sector. 
    The impending deal will see global rivalries being drawn in the Indian market. The deal is seen as a booster to Diageo that trails French rival Pernod Ricard in emerging markets. Pernod Ricard's rapidly growing Indian whiskies Blender's Pride, Royal Stag and Imperial Blue have already made it the second largest domestic distiller. But Diageo's big push will uncork a new phase in an industry where Mallya and his late challenger Manu Chhabria once fought bitter battles, often at the cost of their businesses.

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