Mumbai: Vijay Mallya-led United Breweries Group is in talks to sell a portion of its 37.5% equity in the group’s flagship beer company, United Breweries Ltd (UBL), to its partner Heineken NV, according to two bankers familiar with the development. They declined to be named because the talks are still at an early stage.
Fresh strategy: UB Group chief Vijay Mallya. Indranil Mukherjee / AFP
However, they clarified that “the current talks do not involve the Kingfisher brand as the UB Group wants to retain its mineral water as well as aviation business under this brand”.
The Indian investment banking arm of Swiss bank UBS AG is advising UB Group in the deal, while Heineken is being advised by NM Rothschild and Sons Ltd.
The UB Group needs cash. The six listed companies in the group have a combined debt of Rs14,231 crore, higher than their market capitalization. The group is currently also in talks with three large multinational liquor firms, including the world’s largest spirits firm Diageo Plc., to offload a significant stake in group company United Spirits Ltd (USL). The promoter holding in UBL is worth Rs766.35 crore going by the closing price of its share on Friday.
Heineken currently holds an stake equal to UB Group in UBL. The Dutch firm inherited this stake after acquiring UB Groups’s long-time partner Scottish and Newcastle, in a $15.4 billion (Rs79,310 crore today) global buyout in January 2008.
According to the bankers, Heineken has offered a price of Rs125 per share, a 47% premium on the company’s current market price. However, they declined to specify the size of the additional equity that it is looking to acquire.
Heineken is also struggling to resolve a no-compete agreement with UBL. Heineken operates a parallel business in India through a joint venture company Asia Pacific Breweries Ltd, a fact that UB chairman Mallya has been using to resist the Dutch brewer’s entry on the board of UBL.
UBL managing director Kalyan Ganguli said, “Heineken is talking to us, exploring a number of options to resolve the pending issues. But it’s not exactly in the direction of an equity transaction at present.”
Heineken’s media manager in Amsterdam had not responded to an email till late Friday evening.
A sector analyst with a Mumbai-based foreign brokerage firm tracking the UB Group said, “The group is now looking for an immediate cash flow to manage the debts that it raised for its recent investments. So, it will definitely leverage the two companies United Spirits and United Breweries, which can only command a premium over the current market valuation.” These are the only two group companies that are running a profit.
A person close to Asia Pacific Breweries confirmed the talks between Heineken and UBL. “The parent (Heineken) is certainly looking at Indian market seriously and it’s first option is to have a clear majority in United Breweries, where it hold about 38% equity now,” he said. “It may even merge the other company with United Breweries eventually.”
UBL currently has a over 40% share in India’s 12-billion-litre beer market, with its flagship brand Kingfisher alone commanding nearly a 25% market share. However, it has focused mostly on its strong beer segment, which has helped it grow so far, as Indian consumers have traditionally preferred a stronger beer.
However, the mild beer segment has, of late, been growing. If Heineken acquires a portion of UB Groups’ stake, it will likely introduce most of its global brands, including Heineken mild in the Indian market.
UBL shares closed at Rs85.20 on the Bombay Stock Exchange on Friday, rising 3.34% from Thursday’s close. The Bombay Stock Exchange’s Sensex index closed 1.6% up at 8,325.82 points.