Diageo set to start clearance process after United Spirits' Whyte & Mackay deal with Vijay Mallya

Written by fe Bureau | Bangalore | Updated: Jul 9 2013, 21:38pm hrs
DiageoDiageo set to start UK clearance process post United Spirits deal
British liquor company Diageo is set to initiate the process of getting a clearance from the UK Office of Fair Trading (OFT) after having closed the United Spirits (USL) deal which gives it control over Scotch distiller Whyte & Mackay (W&M). Diageo accounts for around 40% of global Scotch volumes and analysts have pointed out that it would possibly need to sell off some of the W&M assets to avoid a regulatory issue.

USL, under Vijay Mallya, had bought W&M in 2007 for 595 million, a move that gave it access to large bulk Scotch reserves. Diageo last week completed the acquisition of a 25.02% stake in USL for R5235 crore, becoming its largest shareholder and also gaining operational control of the company.

Now that we have closed the deal, we will be engaging appropriately with the OFT and anticipate filing in due course, Diageo said in an email response to FE. Asked if it would look at hiving off W&M or any of its large distilleries, the spokesperson said: We are engaging appropriately with the OFT in connection with the transaction and given where we are in the OFT process, it would be inappropriate to comment further.

W&M, whose Invergordon distillery is one of the seven large grain distilleries in Scotland, is among the largest suppliers of bulk Scotch to branded companies which do not own any production assets and to supermarkets which have their own labels. Besides, it also owns four malt distilleries. Over the past five years, since Mallya acquired the company, its focus has been on reducing the bulk spirits business and developing its own brands such as Dalmore and Jura.

Trevor Stirling, a senior analyst with Bernstein Research who tracks Diageo, told FE that there has been no news yet from the UK authorities on the issue. In a research note in November, Stirling had said that it was likely that UK regulators will wish to examine the impact of the acquisition of Whyte & Mackay on the supply of Scotch.

According to USL, the profit before tax reported by W&M doubled to 31.67 million during the 12 months to March 31 while net sales grew 17.04% to 218.89 million.