Within a few of days after the UK Office of fair Trade saying it was considering Diageo’s offer to sell of majority of the assets of Whyte and Mackay to salvage its deal with United Spirits Ltd, the company has already received at least one open expression of interest.
Vivian Imerman, former owner of the Whyte & Mackay, has said he is willing to buy back the asset as he is scouting for spirits and beer business to strengthen his portfolio in Asia and Africa.
“Vasari Chairman Vivian Imerman has noted Diageo’s reported interest in selling the Whyte and Mackay business due to an investigation by the Office for Fair Trading (OFT). If it is decided that Diageo will sell, Mr Imerman has expressed an interest in buying it back,” said a statement from Vasari Global, a company started by Imerman in 2008, after he sold the Whyte & Mackay business. Vasari focuses on opportunities in emerging and frontier markets in consumer packaged goods, FMCG and SMCG.
Indian liquor baron Vijay Mallya had acquired the Glasgow-based company selling the Dalmore, Jura and namesake Scotch whisky brands in 2007 from Imerman and his brother-in-law, Robert Tchenguiz for $1.2 billion. The duo had taken full control of Glasgow-based Whyte & Mackay during 2005. Imerman had been part of a group of investors who paid £208m for the company in 2001.
“Whyte and Mackay would make an important addition to the portfolio of spirits and beer businesses in Africa and Asia where Imerman has been concentrating his efforts through his company Vasari since his five-year restraint expired last year,” the company’s statement said. “The W&M brand would be complementary to the strategy of acquiring and growing businesses in these regions to take advantage of rapid consumer growth.”
Since the OFT’s decision was announced on Monday, there has been immense speculation not only about potential buyers but also the bargaining power of Diageo and United Spirits at a time when they are forced to sell off the asset. Industry experts have estimated that the company’s assets would likely only fetch $700-$800 milllion.
“It is certainly not the best time to be selling at the moment but certainly there are lot of companies around the world that want to buy a Scotch brand and Diageo/USL will certainly get some money for it,” says Val Smith, Chairman of International Wines and Spirits Research.
Whyte and Mackay had fetched United Spirits revenue of about 218 pounds, or about 25% of the company’s total revenue, in fiscal 2013. It was supposed to help USL add Scotch whisky to its portfolio of products as W&M came into USL with a strong place in the Scotch whisky business, grain and more distillation, and a great heritage of brands. W&M also owns the Dalmore and Jura brands as well as Vladivar vodka and Glayva liqueur.
However, United Spirits reported consolidated losses in three of the last five years, despite healthy standalone profits and this could be attributed to high interest cost for servicing the debt raised for the $1.2 billion transaction undertaken for the acquisition.
Analysts say the sale of W&M could provide an upside of 27% to 40% to the company's FY15 and FY16 estimates. The sale of W&M will also result in improved working capital (since W&M has ageing scotch inventory), return ratios and lower the leverage, analysts say.
Whyte & Mackay is also a non-core investment for Diageo and unlikely to fit in Diageo’s strategy of premiumization, even in the Scotch whisky segment. Diageo, the world's largest distiller which has now close to 26.4% controlling stake in the India’s largest spirits company, had offered to part with three distilleries owned by Whyte & Mackay to allay competition concerns arising from the deal.
OFT said it found substantial competition in the retail sector between Bell’s whisky (a Diageo label) and W&M’s own label, and the combined capacity of Diageo and USL may lead to substantial reduction of competition in the supply of blended whisky to retailers, leading to a substantial increase in prices of blended whisky.
