Diageo may buy into United Spirits

Global drinks leader Diageo is said to have evinced interest in picking up a minority stake in Vijay Mallya’s liquor flagship United Spirits (USL). Sources said talks exploring the possibility of Diageo buying around 10-13% in the Indian spirits behemoth, the world’s third-largest by volume, for $500-600 million have taken place.

Sources said Diageo was interested in buying into USL with the latter’s enterprise valuation pegged at over $5 billion. It is believed that the domestic giant may be open to placing a small stake with Diageo without ceding management control. This could see Diageo entering as a financial investor, for now, at least. In many ways, observers say, the move is reminiscent of Vodafone’s buy into Airtel some years back.

Read more in The Economic Times article.

Vijay Mallya downs Whyte & Mackay

Liquor baron Vijay Mallya today put the cork on months of speculation by announcing the purchase of Glasgow-based Scotch whisky distiller Whyte & Mackay for £595 million (Rs 4,784 crore).

Mallya’s United Spirits, India’s largest liquor firm and the flagship of his UB Group, will now own all the shares held by W&M Chairman Vivian Immerman and other investors.

That will give the Indian company an annual output of 75 million cases, and it will remain the third largest in the world in terms of number of cases produced, behind Diageo and Pernod-Ricard SA.

Mallya, chairman, UB Group, said at a video conference from Glasgow that the 140 brands owned by the company, including Whyte & Mackay, Isle of Jura, The Dalmore and Vladivar vodka, had been independently valued at £170-190 million.

The distiller’s brands will be sold in India, China and Russia. Besides, the firm’s Scotch will be used to blend whisky in India.

The deal is estimated at 21 times historical EBITDA (earnings before interest, tax and depreciation) for the year ended September 2006, a premium to those of peers Diageo and Pernod-Ricard.

Analysts, however, believe the premium is justified and inevitable, given the growing demand for Scotch whisky worldwide and the fact that not too many distillers are up for sale.

The combined turnover of United Spirits and Whyte & Mackay in the current year may touch Rs 4,700 crore and the combined operating profit, Rs 750 crore.

The deal will be financed through a combination of borrowings from Citibank (£310 million) and ICICI Bank (£ 325 million). A part of this debt, £325 million, is to be raised in Whyte & Mackay without recourse to United Spirits.

Read more in The Business Standard article.