Mallya ready to buy out Heineken stake in UB

Vijay Mallya's United Breweries Group has indicated that it is ready to buy out Dutch beer giant Heineken's stake in the group if a conflict of interests arises.

Heineken and Carlsberg had jointly signed the deal to take over UK-based brewer Scottish & Newcastle (S&N) in January this year for around $11 billion.

Under an agreement reached by the three companies involved in the deal, Heineken was to take over S&N's India operations, including the 37.49 per cent stake it holds in the UB Group.

However, this offer has a compelling strategic rationale for Heineken's plans in India. Heineken hopes to receive greater exposure to developing markets and the takeover of S&N would enable it to penetrate the fast growing Indian beer market and the US beer import segment.

Heineken holds 42.5 per cent in Singapore-based Asia Pacific Breweries, which could brew and distribute Heineken beer in India. This would put Heineken in direct competition with UB's Kingfisher beer.

UB is pushing for a situation where Heineken does not have two different entities selling beer in India. This would be the key point of discussion between UB and Heineken.

According to industry analysts, there are two options to resolve this: either Heineken should exit this venture or bring the Asia Pacific entity under a single umbrella in India.

Sources say that if UB has to buy out the Heineken stake, the group is ready for it. However, when contacted, Vijay Mallya, chairman of the UB Group, said, "It is premature to talk about this because the deal between S&N and Heineken is yet to be completed. Only when we know the contours of the deal can we decide what to do next."

If UB were to buy out Heineken's stake, it would have to shell out nearly Rs 1,500 crore, which might be a stretch for the Indian liquor company which currently has a debt of Rs 500 crore.

"The Kingfisher-Heineken combination is brilliant for the Indian market and there are options to work out hurdles. We are discussing with them along these lines. The priority for Heineken is to first get the court approvals to buy the shares of S&N. After this, we will look for a solution," said Ravi Nedungadi, chief financial officer, UB Group.

UB has a market share of nearly 45 per cent. Carlsberg has also set up a 4,50,000-hectolitre (hl) capacity brewery in association with South Asia Breweries here.

The promoter group holding in the UB Group is 74.98 per cent (37.49 of Mallya and 37.49 of S&N), while foreign institutional investors hold 16.15 per cent, 6.55 per cent by individuals and 2.32 per cent by others.