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INDIA. In a deal which will strengthen Diageo’s foothold and insight into the Indian market, the company has confirmed it will buy a majority stake in United Spirits Limited (USL). The deal, which is subject to shareholder and regulator approval, could ultimately see Diageo take a 53.4% stake in United Spirits for £1.3 billion.
Diageo CEO Paul Walsh said: “As a result of the agreements…we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers.”
Few businesses have a better understanding of the Indian consumer than USL, which claims to be the largest spirits company in the world by volume (122.75 million cases in the fiscal year ended 31 March 2012), and has successfully steered brands such as Royal Challenge and McDowell’s in the subcontinent. USL Chairman Dr Vijay Mallya will continue in his role following the deal.
Travel retail is one area where the acquisition may reap benefits for Diageo. Speaking to The Moodie Report for the October print edition, Diageo Managing Director of Global Travel & Middle East Roland Abella explained where the company needed to strengthen its position to tap into the lucrative Indian market.
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Dr Vijay Mallya will remain as Chairman of United Spirits |
He said: “Indians”¦ are starting to spend in a much bigger way. We really need to follow those travellers and make sure that we have enough insight and enough understanding about their shopping attitudes and behaviour.”
Walsh added: “USL’s number one position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India’s increasing number of middle class consumers look to enjoy premium and prestige local spirits brands as income levels rise.
“The combination of USL’s strong business with the capabilities which Diageo brings as the world’s leading premium drinks company will ensure that USL continues to lead the industry in India.”
Whyte & Mackay
One potential challenge raised by the deal could be USL’s ownership of Whyte & Mackay, acquired in 2007 for £595 million, and parent of brands such as Dalmore, Isle of Jura and Vladivar Vodka.
In a note last month, analysts at Credit Suisse said: “If Diageo acquires a significant control in USL, it will lead to indirect control over Whyte & Mackay, to which the European anti-monopoly body would object.”
Although Walsh has signalled that Diageo is prepared to sell off Whyte & Mackay in order to safeguard the deal, he has also expressed his belief that it will not be necessary, according to reports.
Whyte & Mackay has big ambitions for growth in premium malt whisky sales through travel retail, as reported in the October print edition of The Moodie Report. But Walsh was reported as being ‘ambivalent’ about a sell-off, saying that Diageo already owns brands that could occupy the positions held by Whyte & Mackay brands in certain markets.
