Making a big bet on the rising thirst for Scotch whisky in India and China, Vijay Mallya-led United Spirits Ltd confirmed a long-awaited £595 million (Rs4,797 crore) acquisition of Scottish whisky maker Whyte-Mackay Ltd.
The deal, the fourth-biggest overseas deal announced by an Indian company this year, continues a spree of big takeovers that stem from companies making bold overseas bets on the back of sustained growth within India. Indeed, United, part of the UB group, already has a 60% share of Indian spirits market and is now the world’s second-largest spirits company with a combined sales of 75 million cases, pushing Pernod Ricard to the third position. Diageo remains the global leader.
Glasgow-based Whyte-Mackay, which is 163 years old, sold nine million cases in the year through March, compared with 66 million cases at United. The company, whose brands include Dalmore, Isle of Jura, Glayva and Vladivar vodka, was on track to book an operating profit of £50 million this year. The price being paid by United includes £175 million in Whyte-Mackay’s debt.
“We’ve paid a very sensible price...,” said Mallya, a flamboyant billionaire entrepreneur and member of Parliament whose most recent claim to fame has been Kingfisher Airlines that just turned two.
Indian investors applauded the deal, pushing United’s shares to Rs895.20, or Rs57.60, up 6.9%, on the Bombay Stock Exchange, giving the company a market capitalization of nearly Rs8,500 crore.
Whyte-Mackay also has 115 million litres in bulk Scotch inventories, which could help United bottle the whisky locally in India and elsewhere. Indeed, United plans to import bulk whisky to India and bottle it here for the domestic market, allowing the company to avoid the nearly 400% duties currently levied by the government on imported bottled spirits. The duty on bulk imports is typically around 200%, giving United, with its strong bottling, marketing and distribution muscle in India, an advantage over rivals who are increasingly looking at India to sell more premium whisky brands, such as Johnny Walker. “The potential for premium Scotch whisky in India is enormous,” said Mallya in a statement. Demand for Scotch is growing at 30% per annum, estimated Citigroup Global Markets in a research note.
Meanwhile, the exorbitant duties on imported spirits, pushed for by domestic firms including United, have led to complaints at the World Trade Organization and are likely to be rolled back in coming years. But, buying Whyte-Mackay and establishing its brands, alongside McDowell’s and Bagpiper, here now could give United a major headstart over foreign rivals.
United has also faced its own battles in selling its Indian-made whisky in Europe. Indian whisky is largely distilled from sugar or molasses while the Scotch Whisky Association of Britain insists whisky cannot be made out of anything other than grain. In Glasgow, Mallya said he would now invite it the association for a “dialogue” on issues including “a level playing field”.
United will also push the brands into China, Russia and the West Asian markets, Mallya said. China, for instance, is now in the top 10 markets for Scotch, having imported $115 million worth of whisky in 2006.
Mallya also said an overseas listing for company will also be considered to give it even more clout in additional global deals. His Whyte-Mackay bid came after he lost out to Credit Agricole Group for Tattinger Champagne, one of France’s marquee brands.
Whyte-Mackay has four malt whisky distilleries in Scotland and a bottling facility at Grangemouth with an annual production capacity of 12 million cases. Its main Scotch whisky distillery located near Inverness, which has a capacity of 40 million cases a year will remain a key provider of bulk Scotch to captive consumption as well as industry buyers.
The UB Group has 69 factories across India and owns 145 brands. The company raised $325 million for the acquisition from ICICI Bank and $350 million from Citibank. United Spirits was advised by UBS in the deal.
(Ashok Bhattacharjee of Bloomberg and Peter Woodfield of AFP contributed to this story.)