Vijay Mallya to merge liquor firms

Vijay Mallya's UB group will form a new entity called United Spirits by merging all its liquor firms namely McDowell & Company, Herbertsons, Triumph Distilleries & Vintners (TDV) and Shaw Wallace & Company (SWC).

The merger will be effected after the financial closures of these companies.

Addressing a press conference in late evening yesterday in the city to announce the UB group's acquisition of a 54 per cent stake in SWC from its promoters, Jumbo World Holdings, the UB group chairman Vijay Mallya said the merged entity will be the world's second largest liquor company with a capacity of 60 million cases. The UK-based Diageo is the largest liquor company with a capacity of 91 million cases.

The UB group's spirits firm McDowell & Co and its affiliates yesterday announced that they had entered into an agreement with Jumbo World Holdings to acquire the latter's 54.54 per cent stake in SWC for Rs 325 per share which includes a fee for a worldwide non-compete clause.

McDowell has also raised its open offer price by Rs 10 to Rs 260 per share to abide by capital market watchdog Securities and Exchange Board of India (Sebi) guidelines.

The merged entity, which will essentially sale over 80 per cent of its product in India and the balance in Gulf countries, will capture more than half of the country's India made foreign liquor (IMFL) market. The market size is pegged at around 110 million cases.

A source in the UB group said the group's spirits firm McDowell will apply to the Securities and Exchange Board of India (Sebi) this week seeking permission to convert the open offer to a triggered offer.

Late in February, the UB group had announced a public bid to acquire 1.20 crore equity shares, representing 25 per cent of the paid-up equity share capital of SWC at Rs 250 per share.

Crisil MarketWire adds: The UB group will dilute equity in the merged entity over a period of 2-3 years, president and chief financial officer Ravi Nedungadi said. The group has secured around $300 million for the acquisition from ICICI Bank. "This corresponds to a line of credit," Nedungadi said.

Though McDowell & Co. and group companies like Phipson Distillery would largely be the vehicles to raise the loans required for the deal, Nedungadi said it was not yet decided which companies would draw what quantum of funds.

However, "a substantial amount would be raised as foreign currency. a little over half would be raised as external commercial borrowings," he said.

The overseas subsidiary Zelinka will raise funds from the foreign branches of ICICI Bank.

The debt would be paid back in 2-3 years through "some sort of equity dilution, either through a public offer, or to a strategic partner (like Scottish NewCastle) or a financial investor," Nedungadi said.

In December, Scottish & Newcastle signed an agreement with the UB group to buy 37.5 per cent stake in group company and India's largest beer maker United Breweries for $177 million.

The UB group announced the over 13-billion-rupee deal Monday, which will make it one of the largest spirits company in the world.

Companies of both the groups were in the limelight on the bourses today. Shares of United Breweries ended at Rs 340.10 on Bombay Stock Exchange, up 5.5 per cent over Monday. McDowell closed at Rs 260.70 rupees, up 3.6 per cent.

Shaw Wallace & Co. shares closed 3.5 per cent lower at Rs 214.35.