When the UB Group announces its acquisition of Scottish whisky maker Whyte and Mackay Ltd on Wednesday, it will mark the first major splash of an aggressive Indian company into the global alcohol beverages market.
The final cost of acquisition, which includes a payment of £100 million (Rs810 crore) to bridge a deficit in the pension trust of Whyte & Mackay, is expected to top £650 million.
UB’s Whyte and Mackay buy is also the largest acquisition deal in Indian spirits and beverages industry, which has seen only a couple of big mergers and acquisitions in the domestic market, besides a few small cross-border deals in the past.
After the UB Group bought its domestic rival Shaw Wallace and Co. Ltd in 2005, the Vijay Mallya-led liquor company is the world’s third-largest spirits and breweries company by sales after international spirit makers, such as Diageo and Pernod Ricard.
The Whyte and Mackay acquisition will offer not only a ready global market access to UB, but also a huge basket of premium and vintage spirit brands to its product portfolio, which the company has been eyeing for years.
The Scotch brands are also an important value-addition to UB’s India market strategy. Domestic Indian spirit makers, including UB, have been buffeted by the entry of international spirit companies such as Diageo and Pernod, who, with their popular premium scotch brands, have a strong grip on the upper end of the local market for whisky.
“Addition of Whyte and Mackay brands to the UB basket will definitely help the company to secure its competitive edge in the local turf,” Timmy Kandhari, a senior director at audit firm PriceWaterhouseCoopers, said.
Whyte and Mackay has popular brands such as Whyte and Mackay Scotch Whiskey, Highland Malt, Isle of Juara Malt Whiskey, Glayva Liqueur and Dalmore Single Highland Malt. It has four different producing units in Scotland.
Mallya, who also runs an airline named after his biggest selling beer Kingfisher, is seeking international brands and building a global sales network to compete with rivals such as Seagram Co. and Bacardi Ltd.
However, reacting to the buzz about the comparatively high valuation of the global deal, the stock price of United Spirit Ltd, the spirit business arm of the UB Group, shed 2.64% value to Rs837.60 on the Bombay Stock Exchange on Tuesday, a day ahead of the formal announcement of the buyout in Glasgow, where Whyte and Mackay is based, scheduled at 3.30pm India time. United Spirits was formed last year by folding McDowell, Shaw Wallace & Co., Herbertsons Ltd and other spirits companies of the UB Group into a single entity. The company owns 145 brands, with 69 factories across India.
A little more than half the cost of the Whyte & Mackay deal, seen expensive by some analysts, will be to pay for the target’s inventory of vintage scotch.
The vintage brands, which have a big demand in the developed as well as emerging markets, including India and China, will be the biggest value-addition to the UB basket with the deal.
Vintage brands are made of whisky distilled and matured for longer periods spanning from five to 60 years in flavoured wooden barrels and casks (normally made of Oakwood) in tightly-controlled conditions.
These brands are often sold as premium versions and in high-profile auctions with a very high price tag. Whyte & Mackay’s current inventory of vintage scotch whiskey has been valued at £300 million.
“It is going to be one of the costliest deals, which UB has ever made. We have tied up with three financial institutions to finance the deal,” said Ravi Nedungadi, chief financial officer, UB Group. The trio includes two lenders Standard Chartered Bank and Citibank, and an unnamed financier.
Since vintage stock of Whyte and Mackay is one of the major component in the total valuation and it commands higher demand in the market, UB’s funding plan includes a leveraged deal with the prime asset from the banks as well, sources said. Founded on the docks of Glasgow in 1844 by James Whyte and Charles Mackay, the target alcohol company is currently one of the largest whisky manufacturers in the world, with distilleries located in Scotland and other parts of Europe.
Currently, Vivian Imerman, chairman and chief executive officer of Whyte and Mackay, and his relatives own a majority stake in the company.
United Spirits has been in talks with the target’s management for some months now as it was keen to have access to Whyte & Mackay scotch brands, which are currently sold in several premium markets in the world.
Last year, the UB Group was in the race for Tattinger Champagne, the world’s sixth-largest champagne company based in France, but lost the bid to lender Credit Agricole Group, which bought the company for $751.92 million (Rs3,082 crore).
Following an unsuccessful bid for Tittinger, the UB Group had acquired Bouvet Ladubay SAS, a French wine company for €14.75 million (Rs85.55 crore then) in 2006.
Bloomberg’s Sam Nagarajan and PTI contributed to this story.