Ever since Diageo struck a deal to buy controlling stake in United Spirits Ltd, the two companies have pulled all stops to ensure the “dream combination” gets all the regulatory clearances. Diageo had even voluntarily offered to sell off a significant portion of its wholly-owned Whyte & Mackay to allay competition concerns being probed by the UK's Office of Fair Trade.
However, matters have taken a turn since, and the company is now said to be considering the sale of the entire asset of Whyte & Mackay and not a major part (about 70 per cent) of the company, according to a person familiar with the matter. The sale of the entire company is being considered as bidders are also reportedly more keen of all and not part of the assets. Whyte & Mackay, including the brands, distilleries and scotch inventory, may be valued at around $800 million and which during the last financial year contributed $200 million to the revenue of United Spirits in financial year 2013.
On Tuesday, the board of United Spirits, led by Vijay Mallya, met in Goa for an unscheduled meeting to discuss the issue. They have initiated a committee “to process and consider, examine and evaluate possibilities in relation to a potential sale”, according to a regulatory filing by the company on Thursday. While the company has disclosed it is exploring “a potential sale” of Whyte & Mackay, it has not clarified if the board has decided on whether it will sell all or part of the company only. The company spokesperson did not offer any further comment on the issue.
On November 25, the UK Office of Fair Trade had said it was considering Diageo’s offer to sell most of the assets of Whyte and Mackay but is yet to take a final call on it. “If a buyer wants the entire company, I think they may decide to sell it off. Diageo’s offer to the OFT shows they are more keen on complying with regulations and if Whyte and Mackay needs to be given up for that sake, it may be done,” says an analyst tracking the company.
While Vasari Global, led by Vivian Imerman, the erstwhile owner of Whyte & Mackay, has publicly announced his interest in buying back the company; others like Remy Cointreau, Beam Inc and Gruppo Campari are reported to be in the league of bidders as well.
Supply no issue
Should Diageo and United Spirits decide to sell off the entire company, they will lose a significant amount of supply to their own brands at a time when the rate of malt and grain supply to the whisky market is dwindling at a rapid pace. However, analysts say the United Spirits might have a pact to secure its supply from Diageo’s distilleries across the globe as the company and the bigger challenge would be to find a buyer whose purchase would once again be approved by the UK Office of Fair Trade and other regulatory bodies.
Of the five distilleries owned by Whyte & Mackay, Diageo has offered to retain the Dalmore and Tamnavulin distilleries that account for combined malt capacity of about nine million litres a year. The supply from these distilleries are said to fuel its namesake brands and also the Black Dog brand of United Spirits. The Dalmore and Tamnavulin brand of whisky were also initially planned to be retained by United Spirits, but could now be sold off along with the remaining assets. As part of its proposal to OFT, Diageo has offered to part with the Invergordon, Jura and Fettercairn distilleries from which it gets 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 of £55-60 million is likely to valued at average industry multiple of seven to eight times. It is unlikely to fetch more than what was paid for it,” the analyst said.
DIAGEO’S INITIAL OFFER TO THE UK OFFICE OF FAIR TRADE
- Divest all central operations of Whyte & Mackay
- Sell Invergordon, Jura and Fettercairn distilleries (10 mn litres of malt capacity & 38 mn litres of grain capacity)
- Retain inventory and assets associated with Dalmore and Tamnavulin distilleries (malt capacity of about nine million litres)
- The Dalmore and Jura brands also initially planned to be retained by United Spirits