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UB, Millennium Alcobev merger not for now

K. Giriprakash

MABL's huge debts, negative worth seen impacting UB

Worrying factors
MABL has a debt burden of over Rs 200 crore which could prove to be a problem for United Breweries to take over the company.
Raising funds in the market would become difficult for the merged entity.
MABL turnaround likely to take longer than expected.

Bangalore , March 22

In a significant development, United Breweries is now reviewing its decision to merge Millennium Alcobev (MABL) with itself as it does not want to takeover a company ridden with huge debts and negative worth.

Even though on the operational front, both MABL and United Breweries work together, as legal entities they might continue to remain separate as of now, sources in UB told Business Line. United Breweries and Scottish Newcastle (S&N) have 50 per cent stake each in the venture.

In United Breweries itself, Scottish & Newcastle and Mr Mallya hold 37.5 per cent stake each.

Since its formation in May 2003, Millennium Alcobev (MABL) has grown rapidly and now commands a market share of around 11 per cent.

The combined market share of United Breweries and that of MABL has grown from around 38 per cent a year ago to around 50 per cent and because of the integration of operations of both the businesses, it has also resulted in raw material savings.

Some of MABL's popular brands include, Zingaro, Sandpiper, Bullet and Marco Polo.

A load on UB

Sources said MABL has a debt burden of over Rs 200 crore and being a negative worth company, it could prove to be a problem for United Breweries to take over the company. "It (merger) would not be to the benefit of the UB shareholders," sources said.

Along with the debt of UB, which is around Rs 150 crore, it would become difficult for the merged entity to raise funds in the market. United Breweries is planning to pump in around Rs 400 crore over the next three years to expand capacities of its various breweries. Most of these investments will be made during the next 18 months. Part of the Rs 400 crore will be raised through external debt.

United Breweries itself had a total debt burden of around Rs 250 crore but with Scottish & Newcastle pumping in money, its debt was reduced to around Rs 150 crore. Sources said UB was also not keen on turning around MABL as it would take a much longer time than what was thought of earlier.

With Scottish & Newcastle coming on board, and because of good market growth, United Breweries has started posting good financial results. For the third quarter of 2005-06, its net profit rose around 550 per cent to Rs 9.24 crore while its total income grew 22 per cent to Rs 122.71 crore for the same period. Its EBITDA rose 165 per cent to around Rs 86 crore during the first nine months of 2005-06.

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