Financial Daily from THE HINDU group of publications
Saturday, Dec 18, 2004
Corporate - Mergers & Acquisitions
Who will say cheers to Mallya on Monday?
Bangalore , Dec. 17
AS UB Chairman Vijay Mallya turns 49 on Saturday and raises the toast in a typically swashbuckling party at Niladri, his palatial home in Mumbai, he would have already sewed up the most significant deal in his 20 years at the helm of the country's largest alcoholic beverages group - a deal that may also decide who would lord over the Indian beer market in future.
Mr Mallya is scheduled to announce a foreign partner for his flagship beer company, UB, by Monday. As reported by Business Line earlier, the toss-up is between InBev, the world's largest brewer by volume, and the UK's Scottish & Newcastle (S&N), which has ongoing ties with UB.
Sources gave InBev the advantage as it is making an aggressive bid in what is seen as the last big opportunity to break into the domestic beer market, widely seen as one of the last potentially big markets in the world.
Many see InBev as a natural ally given Mr Mallya's admiration for the way the Belgian brewer has forced its way to the global top slot.
However, S&N has the advantage of existing ties and investments with Mr Mallya - they jointly own the country's third largest brewer, Millennium AlcoBev Ltd (MABL).
The two hold 40 per cent each in the joint venture, leaving the rest with Mr Ravi Jain, the company's Managing Director and strategic ally of Mr Mallya.
Mr Jain, considered one of the finest value creators in alcobev sector, structured the deal with S&N in 2001 that gave Mr Mallya the resources to gobble up a few influential independent brewers and enhance his grip over the market. Today, Mr Mallya banks on MABL to maintain his unassailable lead in beer sales.
(UB controls nearly 45 per cent of the domestic beer consumption followed by the SABMiller-managed Shaw Wallace Breweries with 35 per cent and MABL with 11 per cent.)
A successful bid by S&N could lead to a merger between UB and MABL. But if Mr Mallya decides to go with InBev, he may have to bid out S&N from the joint venture to keep his leadership intact.
It will be interesting to watch whether S&N is prepared to exit India and at what price (the UK brewer has also advanced Rs 250 crore as loan to UB).
Analysts expect Mr Mallya to show up with a deal in the vicinity of Rs 1,000 crore, which would place the foreign partner on equal footing in terms of equity holding even though UB would retain management control.
SABMiller said that the induction of a foreign partner in UB would help in building industry pressure on Governments for reforms. Beer, with per capita consumption of 0.6 litre, accounts for just three per cent of the alcohol consumption in the country.
But for now, it is party time as Mr Mallya sets the floor ready for the Saturday bash, perhaps hours before he opens up his biggest asset, Kingfisher, to a foreign partner.
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