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Diageo’s £1.1bn bid to lift stake in United Spirits

Diageo is looking to cash in on the rapidly growing market in India. Picture: Getty Images

Diageo is looking to cash in on the rapidly growing market in India. Picture: Getty Images

  • by GARETH MACKIE
 

Spirits giant Diageo is mounting a £1.1 billion bid to take control of India’s United Spirits as it seeks to grow its presence in the world’s largest market for whisky.

If successful, the tender offer would see Diageo – owner of Johnnie Walker Scotch whisky, Smirnoff vodka and Tanqueray gin – owning almost

54.8 per cent of India’s largest spirits maker, which was previously controlled by tycoon Vijay Mallya.

Diageo, led by Indian-born chief executive Ivan Menezes, below right, already controls almost 28 per cent of United, owner of the Glasgow-based Whyte & Mackay business that includes the Fettercairn, Invergordon and Jura distilleries.

The acquisition of that stake in November 2012 triggered an investigation by competition regulators, which led to Diageo putting the bulk of Whyte & Mackay up for sale last year.

Those said to be interested in buying the business include Stolichnaya vodka owner SPI Group and private equity firm Lion Capital, which is understood to have teamed up with former Whyte & Mackay chief executive John Beard.

Italy’s Campari, which today agreed a €103.8m (£85.6m) deal to acquire liqueur maker Fratelli Averna, has also been tipped as a bidder.

Diageo declined to comment on progress over the sale, which is being handled by United. Second-round bids are due tomorrow and it is believed the business could fetch about £350m.

Indian whisky drinkers get through about 150 million nine-litre cases a year, making the subcontinent the world’s largest market in volume terms, and Diageo is keen to increase its presence in a region where consumer incomes are rising.

Scotch exports account for just 1 per cent of India’s whisky consumption, which the Scotch Whisky Association blames on “exorbitant” duties. Export values grew 11.5 per cent to £68.7m last year, according to the trade body.

Diageo is paying a premium of

22.5 per cent on the price it last bought United shares, on 31 January, and said it would fund the purchase through existing cash resources and debt.

Chief financial officer Deirdre Mahlan said: “We do think that it will be a successful transaction.

“This price is also at an attractive premium to the market price and we believe that it creates a unique opportunity for investors to be able to monetise their investments.”

Shore Capital analyst Phil Carroll, who has a “hold” rating on Diageo’s shares, said the deal was expected to deliver enhanced earnings in the year ending June 2016.

He added: “Overall, this comes as no surprise and it highlights to us the extent that Diageo wants to tidy up this deal, which has been rolling on longer than initially expected.”

Diageo, which reported a 1 per cent rise in first-half operating profits to £2bn in January despite a dip in sales, is due to update investors on trading for the third quarter tomorrow.

Menezes, who took over from long-standing chief executive Paul Walsh in July, is aiming to trim £200m off the group’s costs to invest more in global advertising and marketing of its products.

 

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