Diageo considers selling almost all of Whyte & Mackay as part of United Spirits deal

World’s largest spirits maker by revenues Diageo is considering selling majority of liquor business under Whyte & Mackay, now owned by United Spirits, as per a disclosure by UK’s fair trade authority.

This could bring an end to what was a trophy acquisition worth $1.2 billion struck six years ago by Vijay Mallya through United Spirits. Mallya sold much of UB Group’s holding in United Spirits, world’s largest spirits maker by volume, to Diageo, which is now the single-largest shareholder of the public listed firm.

As reported earlier by VCCircle, United Spirits had itself considered selling Whyte & Mackay ahead of deal with Diageo but retained it. Later Diageo had said it intends to keep Whyte & Mackay.

Diageo had gone ahead and completed its deal to buy a strategic stake in United Spirits early this year.

Although it managed to buy just around half of the Indian firm, by virtue of being the single-largest shareholder and say in the board with its nominees, Diageo is in the driver’s seat. In the original agreement it had ensured that if Diageo is unable to obtain majority shareholding, UB Holdings will vote as directed by Diageo for a four‐year period.

UK’s Office of Fair Trade (OFT) said on Monday it is considering an offer from Diageo to sell most of its Whyte & Mackay business to address competition concerns regarding bottled blended Scotch whisky, arising from its completed acquisition of United Spirits.

United Spirits said that its board will consider the latest development and determine further course of action.

Diageo and United Spirits are both suppliers of spirits in the UK and across the world. In the UK, United Spirits' subsidiary, Whyte & Mackay, is primarily active in the supply of whisky but also owns and distributes other spirits, including vodka. Besides selling bottled blended whisky to retailers, Whyte & Mackay is also an important supplier of own-label blended whisky.

A number of retailers expressed concerns to the OFT about possible price rises for bottled blended whisky sold in the UK as a result of the merger.

“The OFT's investigation found that there is substantial competition in the retail sector between Bell's whisky, a Diageo label, and Whyte & Mackay's own-label and branded blended whisky. After analysing evidence including data on consumer switching between brands, economic modelling and internal documents, the OFT found the merger may lead to a substantial lessening of competition in the supply of blended whisky to retailers,” it said.

The OFT said it considered to what extent other manufacturers of blended whisky were capable of competing with the merged business. Its evidence showed that other manufacturers did not have, and could not quickly reach, sufficient capacity to offset the loss of competition likely to result from the merger.

Chris Walters, OFT chief economist and decision maker in this case, said: “Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers. We are now considering Diageo's offer to sell the bulk of the Whyte & Mackay business with the exception of two malt distilleries, to address our concerns.”

It said that the merger may not lead to a substantial lessening of competition in the supply of bottled blended whisky to the on-trade (bars, pubs and restaurants), nor did it find such competition concerns in the supply of malt whisky, the supply of vodka or the bulk supply of whisky.

OFT said the divestment would include almost all of Whyte & Mackay excluding Dalmore and Tamnavulin malt distilleries (including assets used to run those distilleries), Dalmore and Tamnavulin brands and maturing inventory from these distilleries as well as associated management and operations, management and staff for each distillery as well as any supply arrangements specifically associated with either production at the sites and sale of product from the sites.

Whyte & Mackay will retain its malt distilleries at Jura and Fettercairn and the Invergordon grain distillery.

United Spirits sells whisky brands like Royal Challenge, McDowell’s, Bagpiper and Antiquity. It also has Scotch brands like Whyte & Mackay, Black Dog, Dalmore and Jura besides McDowell’s No 1 rum and White Mischief vodka. In the wine segment, it has Bouvet-Ladubay and Four Seasons.

Diageo, the maker of legendary Scotch brands such as Johnnie Walker, J&B and Baileys, besides Smirnoff vodka, had recently said it is looking to realign brand portfolio under United Spirits and was looking to exit less profitable brands.

Also Read

Diageo acquires 25.02% in United Spirits as against the original plan of 53.4%

Diageo decides against selling Whyte & Mackay

United Spirits set to sell Whyte & Mackay, in talks with buyout giants

(Edited by Joby Puthuparampil Johnson)

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