UB Group: Flying into turbulence
4 min read . Updated: 15 Sep 2014, 11:55 AM IST
PremiumIt had seemed a perfect run for Vijay Mallya, who inherited the UB Group at 28. However, what may mark the legacy of the 'king of good times' is his ill-fated entry into aviation
Mumbai/Bangalore: As Indians revolted in 1857 to cast off the British yoke, bullock carts in south India quietly transported large beer casks from breweries to European settlers and troops, initiating an eventful journey to what would one day become free India’s biggest beer and liquor conglomerate, with operations in chemicals, fertilizers, paints, aviation and engineering.
Castle Brewery and Nilgiris Brewery Co. were set up in the Nilgiris in 1857 to serve British soldiers. Then came the British Brewing Corp. in Tamil Nadu in 1902 for the affluent in the port town of Madras, now Chennai, and the Bangalore Brewery Co. for troops in Pune and Bangalore.
On 15 March 1915, Thomas Leishman, a Scotsman, founded United Breweries Ltd (UBL) in Chennai, bringing all the southern breweries under its umbrella. Leishman was the company’s first managing director. During both world wars, UBL brewed bulk beer exclusively for troops.
It was Vittal Mallya, father of current group chairman Vijay Mallya, who saw an opportunity in UBL. An outstanding student, he was the youngest of the three children of Lt. Col. Bantwal Ganapathi Mallya, who was a doctor. He started buying UBL shares and was finally elected to its board in 1947 at the age of 22. A year later, he became the company’s chairman.
Twists & turns
Vittal took UB Group on a trail of acquisitions and diversification, strengthening the pillars of the group. In 1951, UB took control of McDowell & Co. Ltd and started manufacturing wines and spirits, which came to be called Indian Made Foreign Liquor (IMFL). In the fifties, the UB Group entered the pharmaceutical and food businesses.
However, Vittal’s health was deteriorating. He suffered a heart attack at the relatively young age of 39. In the early 1980s, he handed over control of the group’s beer and spirit businesses to son Vijay Mallya, who had returned from the US and the UK after working with companies there. Vittal died in 1983.
Vijay Mallya took over as group chairman in October 1983. He introduced a new corporate structure and inducted professional management. The son seemed to inherit the father’s penchant for acquisitions, buying and selling many companies in liquor, rail transit, media, batteries, carbonated beverages, engineering, mining, petrochemicals, electricals, hospitality and information technology.
His notable acquisitions outside liquor include Berger Paints (later sold for a profit), engineering firm Best and Crompton, both in 1988, and an ailing Malabar Chemicals and Fertilizers in 1990, later renamed Mangalore Chemicals and Fertilizers Ltd.
Mallya’s epic battle for control of liquor firm Shaw Wallace and Co. lasted two decades. It was in 1984 that non-resident Indian Manu Chhabria made a hostile bid for Shaw Wallace.
Mallya claimed the bid was actually made jointly by an offshore firm in which he was a partner, which was disputed by Chhabria. Chhabria eventually gained control of Shaw Wallace, triggering a multi-year legal battle in Hong Kong.
Mallya partnered Chhabria’s estranged brother Kishore and kept up the pressure for getting what he believed was rightfully his. The war for Shaw Wallace ended in March 2005, three years after the death of Manu Chhabria at 56, with Mallya finally acquiring a controlling interest in the company from the Chhabria family.
In 2007, United Spirits Ltd, the flagship of the UB Group, bought the UK-based scotch distiller Whyte & Mackay and Liquidity Inc. for £575 million, financed by debt. By this time, both UBL (which was partly owned by Heineken) and USL had been established as respective market leaders in beer and spirits. UB Engineering and Mangalore Chemicals had stabilized. Mallya was a billionaire.
However, what could mark the legacy of Mallya may be his ill-fated entry into aviation in 2005. The full-service airline Kingfisher Airlines never made a profit and soon became an albatross around the group’s neck. Extravagant spending on planes, advertising, service and other things—mostly funded by bank borrowings— led to Kingfisher racking up thousands of crores in losses.
The 2007 acquisition of Air Deccan added to its debt and accelerated its descent. The purchase increased costs, while hurting the Kingfisher brand. Mallya renamed the low-fare business later as Kingfisher Red, before shutting it down in late 2011.
By then, Kingfisher had lost altitude dangerously. It could not pay its creditors on time. Delayed salaries led to frequent employee strikes, while delayed payments led to airports and airport agencies imposing severe restrictions on its operations. As flights got disrupted, Kingfisher sank further. In 2012, the income tax department froze Kingfisher’s accounts due to long overdue payments and the airline grounded most of its flights. Despite the government allowing foreign direct investment (FDI) in aviation in September 2012, there was no hope for Kingfisher.
As Kingfisher shares tanked, Mallya lost his place on Forbes’ billionaire list. The firm shut operations till late November 2012 and its licence was suspended by the government. It hasn’t flown since and creditors have filed several cases to shut down the UB Group, which guaranteed Kingfisher’s debt.
Conglomerate@2014
Thanks to Kingfisher’s troubles, Mallya was forced to sell most of his and the UB Group’s stake in United Spirits Ltd to Diageo Plc. The UB Group now owns below 10% in USL, though Mallya continues to be chairman. Lenders which were pledged stock to guarantee Kingfisher’s debt began to sell shares in Mangalore Chemicals, UBL and USL. Mallya is fighting to keep control of Mangalore Chemicals, while Heineken holds the reins in UBL. The other large UB Group firm, UB Engineering, is left without a board after several directors resigned. There’s no clarity on UB Engineering’s future; or, for that matter, that of the UB Group.
This is the last part of a 10-part series on conglomerates that trace their roots to the years before India’s independence.
