New Delhi: Bankers at Citigroup may celebrate the latest cross-border takeover involving India with a few extra drams of Scotch.
That is because the huge global bank played a leading role on both sides of the buyout of Whyte and Mackay, a 163-year-old Scottish distiller, by United Spirits, the flagship company of billionaire Vijay Mallya’s UB Group.
In a situation that has cropped up recently on Wall Street, Citigroup served as the sole financial adviser to the whisky company as well as a major lender to its buyer.
Mallya announced on 16 May that he would pay £595 million (Rs4,819.5 crore) to the distiller, based in Glasgow. The purchase price was nearly £200 million more than what Mallya had originally bid for the company last year, and about £100 million less than what Whyte & Mackay executives told Mallya they wanted.
In high spirits: UB Group chairman Vijay Mallya (left) with Whyte & Mackay chairman and chief executive officer Vivian Imerman, after announcing the £595 million buyout of the Scotland-based distiller on 16 May at a press conference at Glasgow’s Hilton Hotel.
People involved on both sides of the transaction said that conflicts of interest were not an issue, and that rehashing the deal process was unnecessary, because both sides were happy with the outcome. “It’s a win-win situation,” said one executive, who did not want to be identified.
Still, outsiders were surprised by the dual Citigroup role. “I think it’s unusual and the potential for conflict is extremely high,” said Richard Bove, an analyst at Punk, Ziegel, an independent research firm. “How does the seller know he’s getting the best price possible, and how does the buyer know he’s getting the best financing deal possible?”
Citigroup could run into problems down the road if, for example, the whisky company’s assets have not been accurately represented, Bove said, leaving Citigroup open for lawsuits. United Spirits is a publicly-traded company. So far, the market has no problem with the deal as well, as the United Spirits stock rose 7% after the deal was announced.
Citigroup was picked as the sole financial adviser to Whyte & Mackay after Mallya made an unsolicited offer for the company last year. The majority of the transaction is being financed by a loan, backed by Whyte and Mackay assets and underwritten by Citigroup and ICICI Bank.
“On this deal, Citi was in the fortunate position to be able to help both sides—acting as adviser to the seller through our London-based mergers and acquisition team and providing some of the financing to the bidder through Citibank in India,” said a Citigroup spokeswoman Lindsey Deans. “There are always appropriate safeguards in place to ensure client information on both sides is kept confidential.”
Providing money or advice on both sides of any deal was once forbidden on Wall Street, but recently the lines have blurred.
Executives said that the Citigroup team in Britain was not aware that the Citigroup team in India was working with Mallya until a few months ago. Whyte & Mackay executives were relieved to learn that Citigroup was also working to provide financing, these executives said, because that meant Mallya would be able to afford the deal.