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Acquisition of Whyte &Mackay by United Brewery Group (USL) Pankaj Kumar Baid
No. 1 Beer in No. 1 Spirits in No. 1 Airline in India India India • Dr. Vijay • Organised • Completed Mallya took Spirits merger of over the reins business Deccan and of the Group at under USL and Kingfisher to a tender age of Beer business form the 28 under UBL largest pvt. • Launched airline Kingfisher Airlines 1950–1982 1983–2002 2003 2005 2007 2008 2009 • Started and • Kept acquiring • Acquired • Acquired • Legal Merger of expanded into smaller players Shaw Wallace, 100% stake in Shaw Wallace beer and in beer and • Brought in Whyte and completed; spirits liquor industry. Scottish New Mackay, • UBL and business BUILT Castle in UBL worlds 4th Heineken strike mainly through BRANDS LIKE largest scotch a deal: brings acquisitions KINGFISHER, company APB / Heineken BAGPIPER, brands BLACK DOG3
UB Group • 2nd largest spirits company in the world and largest spirits company in India with a market share in excess of 55% in first line United Spirits Ltd., brands No. 1 Spirits Company in • Key brands are Dalmore, Jura, Whyte & Mackay, Black Dog, India Antiquity, Signature, Royal Challenge, McDowells No.1, Celebration Rum, Romanov and White Mischief • Undisputed leader of the Indian beer industry with over 50% United Breweries Ltd., market share No. 1 Beer Company in India • Key brands are Kingfisher Blue, Kingfisher Strong, Kingfisher Premium, Kingfisher Ultra, Kingfisher Draught, London Pilsner, UB Premium Ice, Kalyani Black Label Premium and Kalyani Black Label • ‘Best Airline in India and Central Asia’, ‘Best Economy Class Seats’ and ‘Staff Service Excellence Award for airlines in India and Kingfisher Airlines Ltd., Central Asia’ in World Airline Awards (May, 2010) No. 1 standalone Airline in India • Indias only 5 Star airline, rated by Skytrax and 6th airline in the world for 3rd consecutive year (May, 2010) • Diversified presence across businesses including equity investment in Mangalore Chemicals & Fertilizers Ltd. and UB Diversified Business Engineering Ltd., investment in Vittal Mallya Scientific Research Interests Foundation and franchisee for IPL team “Royal Challengers”4
Founded by Thomas Leishman in 1915. India’s largest brewery 140 brands in portfolio like Bagpiper whisky, McDowell No.1, Director’s special whisky, McDowell No.1 Brandy, Premium Ice, Kalyani Black Label etc.. Domestic market share in excess of 50% For maintain leadership position they made multifaceted strategic alliance with Scottish and New Castle PLC
Increased scale – price increase from improved negotiating power. Increased usage of single Completely Built Unit (CBU) to improve throughput. Extra Neutral Alcohol (ENA) procurement pattern and spirit movement planning. Rationalization of terms of trade reduction in spends, personnel and overheads. The merged entity was called United Spirits. The UB Group has paid Rs. 1,545 crore for the acquisition, which includes Rs. 312 crore for 25 per cent shares acquired through the open offer.
Founded by James Whyte and Charles Mackay in Scotland 4th largest whisky maker in the world with turnover of $283 mn Major brands like Isle of Jura, Dalmore, Vladvir Vodka and W&M Scotch. No. of employees : 700 Working on the philosophy of ‘all good things come to those who wait’.
Premiumization trend in scotch whisky segment Global Scotch whisky market is growing at a value CAGR of Volume (Mn. Cases) about 7% ( 2004-09) which is significantly higher than volume 20-Yr CAGR 100 CAGR of about 2%. 80 60 13.7% W&M’s average branded business realization for relevant 40 4.7% 20 vintage is 4 to 4.5 times that of bulk business 0 0.3% 1988 2008 Value Standard Clear premiumization trend in Scotch with premium scotch Premium Super Premium 1.5% segments growing at a faster pace than standard/value scotch Growth trend in emerging markets segment. 4 Yr CAGR (2004-08) Volume (Mn. Cases) Single Malt whisky segment has grown significantly higher than 20-Yr blended scotch whisky with a volume CAGR of about 6%. CAGR 4.4 Increased preference for higher vintage scotch and single malt % whiskies. 0.1% Sustained growth in large emerging markets of China, India, Russia, Brazil, and South Korea over the last decade. * 2-Yr CAGR
Indian Liquor Industry divided in two parts: Indian Made Foreign Liquor (IMFL) – 200mn cases per annum and per capita consumption around 2.1 liters per annum Bear Segment – 91 mn cases per annum. In 2006 Union Budget Govt. impose 4% Counter Veiling Duty on liquor industry which strengthens the position of domestic company.
By Leveraged Buy Out Debt is secured by the assets of the acquired business & the cash flows of the acquired business will be used to service the debt Deal was worth Rs.9484.84 Crs @ Exchange Rate of 80.38 Rs /GBP Special purpose vehicle – “United Spirits” newly launched company UB paid GBP 505 Million which accounted 100% stake in Whyte & Mackay which formed the equity component of the newly launched company United spirits Debt to equity ratio of newly launched company 1.336 UB stake in United spirits is limited to its equity investment of 505 Million GBP . The Assets of W&M would be transferred to the balance sheet of united spirits which would be used to collateralize the debt taken for Acquisition
Acquisition finance to USL was provided by ICICI Bank & Citibank Debt of £ 325 mn loan (9 yrs.) extended by ICICI Debt of £ 210 mn (5 yrs.) extended by Citibank Advisors to the Buyer and Seller Buy side - United Bank of Switzerland Sell side – Citigroup The UB Group parted-fund the acquisition by selling a part of 17 million shares it has deposited in a trust for this purpose. W&M expected operating profit of 50 Mn in 2007 and this was expected to take care of the interest costs for the acquisition and it actually did happen.
MOU with Russian Standard Company China Initiatives Wine business New product initiatives
Whyte & Mackay Sales climbed around 4% to £149 mn compared with 2004. The deficit in shareholder’s funds was reduced by more than £12 mn to £1.5mn
United Breweries Group To increase the brand portfolio USLs consolidated sales up by 75 Mn cases p.a. Hold on Inver Gordon Distillery, near Inverness and malt whisky distilleries in Scotland Bottling facility in Grangemouth with a capacity of 12 million cases annually. Enter into the Russian and China Market Self sufficient for Scotch requirement Brand image of Whyte & Mackay Import tariff avoided and brand can be sold at higher margins. United Spirits shares closed at Rs 895.20, up 6.88 per cent. (Currently trading at Rs 729.20)
The Finance Minister delivered a punch by ordering a Excise duty hike on Packaging. The rise of excise duty on Packaging material is by 2%. Steep increase in cost of glass bottles off late estimated to be around 8-9%. Impact of around 55crores annually United Spirits Limited. Increase in Service tax by another 2% would result in margins getting affected due to the service tax on bottling. ENA (Extra Neutral Alcohol) is also going through a volatile pricing period.