Dutch brewer Heineken NV and India’s largest beer maker by sales United Breweries Ltd, or UB, may work out a way by which both can do business in India and resolve a conflict of interest in the nation’s beer market.
No clarity yet: UB Group chief financial officer Ravi Nedungadi in a 2007 photo
Heineken, which inherited UB’s long-time partner Scottish and Newcastle Plc.’s (S&N’s ) 37.5% equity in the Indian company after a global buyout deal in January, also sells beer in India through Asia Pacific Breweries Ltd, in which it owns 42.5%. The Singapore-based Asia Pacific Breweries directly competes with UB in the local beer market, which is why UB does not want Heineken on its board.
“One of the solutions which is in the discussions now is to form a new business structure between the three to resolve the conflict in the local market,” said a person close to the development.
“We are firm on our stand that the conflict of interest should be resolved. But no clarity is yet emerged though Heineken has now become owner of the S&N assets in the company,” UB Group chief financial officer Ravi Nedungadi told Mint.
Asia Pacific Breweries’ regional director, South Asia, and director, group business development, Vivek Chhabra said, “Currently these are two different companies. It is too early to comment whether there will be a change in the existing structure at all or not in the companies’ Indian business as it’s a matter to be discussed between UB and Heineken.”
Asia Pacific Breweries currently sells three beer brands, including its global brands Baron’s Strong Brew and Tiger. It operates two breweries at Aurangabad in Maharashtra and Hyderabad. The company is also planning to set up a third brewery in northern India.
Last week, UB Group had filed suit in the Bombay high court against Heineken and Carlsberg AS — another global brewer that jointly bid for control of S&N in a $15.4 billion global deal— seeking termination of the special rights and privileges granted to S&N, to prevent the new partner using them in the Indian company, as first reported by The Economic Times.
United Breweries is part of Indian billionaire Vijay Mallya’s liquor conglomerate, the world’s third largest spirit maker, UB Group. The company, which enjoys more than a 50% share of the local beer market with its flagship brand Kingfisher, was owned by UB Group and S&N with each company holding 37.5% equity as promoters’ stake. After the global deal, Heineken inherits S&N’s stake in UB.
Since Indian laws mandate that any such transaction involving more than 15% of a company’s equity be followed by an open offer to shareholders to acquire a further 20% in the firm, Heineken may have to make an open offer to UB shareholders.
However, it won’t suit UB Group, which is unlikely to want someone to have a larger stake in its brewing firm. Nedungadi, in an earlier interview had said the acquisition “may not essentially trigger an open offer.” He had also said that under the terms of UB Group’s agreement with S&N, the former could, under certain conditions, buy back S&N’s stake at a “fair price”.