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UB set to soak South with latest buyout -- Snares GMR Vasavi, Empee

Boby Kurian

BANGALORE, Feb. 7

THIS is Mr Vijay Mallya's biggest-ever strike on small brewers. The UB group is sewing up two strategic deals in the crucial southern beer markets. The beer major has struck a Rs 55-crore deal with GMR to snap up the latter's brewery in Andhra Pradesh and plans to buy out the Chennai-based Empee group's brewing business.

UB's deal with GMR is likely to be announced in the next few days as both parties have agreed to an all-cash transaction valued at Rs 55 crore. However, the deal with Empee may drag on for a while as UB is currently waiting for the target's restructuring exercise to get over. As a prelude, UB has already forged a brewing and distribution pact with Empee, which is expected to take shape soon.

The deal with GMR will help UB tide over capacity constraints in Andhra Pradesh, which is tipped to emerge as the largest beer market in the current financial year. Currently, UB lags behind arch rival Shaw Wallace, with 25-per cent share in this crucial beer market. The relatively new GMR Vasavi brewery recently received State Government's nod for capacity expansion from 1.2 lakh to 2.5 lakh hectolitres.

When contacted, UB said it was "looking at" acquiring Empee's brewing business, which would give it the much-needed capacity in Tamil Nadu, the third largest beer market in the country. "We have to wait as Empee is in the midst of restructuring its liquor and beer business into two separate entities," sources said. UB denied industry speculation that it had already paid a hefty advance to set the deal in motion.

Empee has two breweries in Chennai and at Palakkad in Kerala, with a cumulative capacity of five lakh hectolitres. Its Chennai plant will soon have a capacity of 5.3 lakh hectolitres following the addition of 1.8 lakh hectolitre to its existing capacity of 3.5 lakh hectolitres. Empee holds 12-per cent share in the Tamil Nadu beer market through its flagship brand, Marco Polo.

Despite its brands enjoying a high equity in Tamil Nadu, UB had to be contend with marginal presence in the State mainly due to the absence of its own brewery. It may be noted that Tamil Nadu's alcoholic beverage policy has consistently favoured local players protecting them against imports from other States. Interestingly, Mallya's traditional ally in the State, the Balaji group, is coming up with its own brewery, which will also cater to UB brands.

UB's blitzkrieg plans in two States is bound to upset the agenda of global brewers such as South African Breweries (SAB) and Foster's in the southern markets. Incidentally, both GMR and Empee breweries were on SAB's radar, before the latter surrendered the initiative to UB. The latest developments will also deliver a temporary blow to Shaw Wallace as it has contract agreements with both GMR and Empee. Responding to the situation, Shaw Wallace officials said they had alternative capacities in mind.

It is not clear how UB will fund the latest buyouts. A fortnight ago, UB entered into a pact with the UK-based Scottish & Newcastle (S&N), which is expected to bring Rs 425 crore into the former's kitty, and made public its intentions to pursue strategic buys in the domestic market along with the European brewer. But the joint venture and the cash committed by the foreign ally are expected only in June.

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