Following the Office of Fair Trading of the UK (OFT)’s directive United Spirits Ltd (USL) would have to sell at least 70 per cent of its scotch whisky subsidiary Whyte & Mackay (W&M), USL has said it is evaluating various options for the move.
“We are exploring options that could bring down such perceived competition to levels acceptable to the OFT and have set in motion a process to enable a possible sale transaction of the stipulated W&M assets during the April-June quarter of FY15,” USL said.
It is understood USL is planning to raise about $800 million through the sale and is close to appointing bankers for the transaction.
Senior United Breweries officials told Business Standard an auction might be conducted to find buyers for the asset, adding this was attracting good interest from global private equity funds, strategic players and W&M’s previous owners. While Vasari Global, led by Vivian Imerman, former owner of W&M, has publicly announced interest in buying back the company, others such as Remy Cointreau, Beam Inc and Gruppo Campari are also reported to be in the league of bidders.
Since Diageo struck a deal to buy controlling stake in USL, the two companies have tried to secure all regulatory clearances. Diageo had offered to sell a significant portion of its wholly-owned Whyte & Mackay to allay OFT’s concern related to competition.
Should Diageo and United Spirits decide to sell the entire company, they will lose significant supply to their own brands at a time when malt and grain supply to the whisky market is dwindling rapidly. However, analysts say USL might have a pact to secure supply from Diageo’s distilleries across the globe. The challenge, they said, was finding a buyer whose purchase would be approved by the OFT and other regulatory bodies.
Of the five distilleries owned by W&M, Diageo has offered to retain the Dalmore and Tamnavulin distilleries, which account for combined malt capacity of about nine million litres a year. Initially, it was planned the Dalmore and Tamnavulin whiskey brands would be retained by USL, but these could now be sold. As part of its proposal to OFT, Diageo has offered to part with the Invergordon, Jura and Fettercairn distilleries, which account for about 10 million litres of malt capacity and 38 million litres of grain capacity.
“They have an inventory of about £300-400 million and that is likely to be valued at a 50 per cent discount, while their Ebitda (earnings before interest, tax, depreciation and amortisation) of £55-60 million is likely to valued at the average industry multiple of seven-eight times. It is unlikely to fetch more than what was paid for it,” said an analyst.
