Heineken might find a larger swig of UB tough

UB Holdings' stake entangled in a series of legal tussles with creditors

With India’s alcoholic beverages segment presenting lucrative opportunities, global behemoths are eagerly waiting to grab these. The low per capita consumption in India, which has a population of 1.3 billion, holds immense potential for many companies facing saturated markets in Europe and the Americas.

The latest and one of the most talked about moves in this regard is Heineken’s efforts to grab a larger pie of the Vijay Mallya-led United Breweries. Heineken, which initially acquired 37.4 per cent stake in the maker of Kingfisher beer (the same as Mallya), was said to be locked in a five-year contract to maintain status quo in the shareholding pattern, while the Indian company distributed Heineken in India. However, a day after the five-year restriction ended, Heineken made a quick purchase of 1.35 per cent additional stake in the company for Rs 275 crore. Subsequent purchases have given the company 38.92 per cent stake in United Breweries. The stake of Mallya and his affiliates has fallen to 35.9 per cent.

While off-market transactions may present opportunities and Heineken is said to be in talks with Mallya to acquire more stake, the fact remains this might be difficult.

To start, 11.39 per cent stake held by UB Holdings is entangled in a series of legal tussles with creditors. Any monetary transaction for this stake has been barred by the Karnataka High Court. As such, this stake is inaccessible to Heineken. The court had also annulled UB Holdings’ stake sale in United Spirits to Diageo. Also, there are five winding-up cases levelled against the company for dues of Rs 600 crore. “The cases have been going on for about a year and a half. Which way these will go or when these will end is anybody’s guess,” says an analyst.

Next is the stake of United Spirits, currently with Diageo. At 3.21 per cent, the stake is outside the control of Chairman Mallya. Heineken may find it difficult to acquire this, unless Diageo decides to part with it.

Of the remaining 21.3 per cent, available with Mallya and his group companies, about 60 per cent, or 12.5 per cent, is pledged and recovering that may be an ordeal, as the shares, mostly pledged with a slew of banks as collateral for loans to Kingfisher Airlines will be hard to secure. Since November 2012, Diageo is fighting to recover 2.38 per cent of United Spirits pledged with IDBI Bank and Punjab National Bank (by USL Benefit Trust), despite the company claiming all dues to the lenders have been settled.

In case of United Breweries, about 75 per cent is with promoters Heineken and Mallya; this is a tad short of the highest promoters can hold in a public-listed company in India. That rules out an open offer in the market from the Dutch major, as there are no shares to buy in any case. “Shares of the company hardly move, as watertight ownership of the shares makes it a very difficult stock to change hands,” says an analyst.

That still leaves 8.75 per cent held by Mallya and associates for Heineken to grab.

Heineken has three directors on the United Breweries board and its stake is largely through Scottish & Newscastle India, a wholly-owned arm of Heineken UK, owned by Heineken SV, Heineken Group’s holding company.