United Spirits to sell Whyte & Mackay to Philippines’ Emperador for $725M

India's largest distiller United Spirits (USL), controlled by the world’s biggest spirits maker by revenues Diageo Plc, has decided to divest the entire equity stake in scotch maker Whyte & Mackay to Philippines-based conglomerate Emperador Inc, owned by billionaire Andrew Tan, for an enterprise value of approximately £430 million ($725 million), according to a stock market disclosure.

The sale is, however, subject to regulatory approvals in India and the UK and shareholder approvals, apart from a nod by the Reserve Bank of India. An approval from RBI is required as the sale will result in a significant write off of loan amounts recoverable by the company from its overseas subsidiary, the disclosure said.

This would 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 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 the 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 last year.

Although it managed to buy just around a quarter 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.

Last year UK’s Office of Fair Trade (OFT) said 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.

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. This necessitated the divestment.

Emperador Inc, a unit of Alliance Global Group Inc, is the leading Philippines-based integrated manufacturer and distributer of brandy as well as other alcoholic beverages. Alliance Global also has interests in property development, food and gaming.

The acquisition will help Emperador Inc to expand its reach and gain a global portfolio of scotch whiskey, malt and grain distilleries and brands.

Diageo had signed a deal to acquire up to 53.4 per cent of United Spirits, in a multi-tiered transaction worth as much as $2.1 billion in 2012. Around 27.4 per cent stake was to be purchased through a mix of preferential allotment and stake purchase from UB Group while the rest was proposed to be acquired through an open offer.

But its open offer failed as the market price shot up on expectations of a better offer from Diageo. It could garner just 0.04 per cent in the open offer. This had taken its holding to 25.02 per cent of United Spirits. It shelled out around $880 million for buying this stake.

But it had been buying small lots in the open market to boost its holding. Last November it bought 1.96 million shares from the open market at Rs 2,400 per share valuing the transaction at Rs 472.31 crore ($75.5 million). This has taken its holding to 26.3 per cent. In January it hiked its stake in United Spirits again by acquiring 2.4 per cent more from a foreign portfolio investor for Rs 866 crore ($138 million), taking its holding to 28.7 per cent. The British firm has shelled out around $1.09 billion to buy 28.7 per cent of United Spirits to date.

It has now made a second open offer significantly hiking the offer price to try and buy majority stake in United Spirits, which could cost it as much as Rs 11,489 crore ($1.9 billion).

(Edited by Joby Puthuparampil Johnson)

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