Diageo, USL begin discussing integration process

Diageo, the global spirits major, is understood to have begun the process of deciding how to leverage its combination with United Spirits (USL).

Diageo, with 25.02 per cent stake, is now the single largest shareholder in USL, this country’s largest company in the segment (and part of the UB Group). Almost all regulatory approvals for the share transfer were completed by early July. Diageo now has global executives on the board of USL. Their seniors are understood to be working closely with USL’s management on a plan for effective integration.

A management committee is to be set up. Also, it seems Diageo is close to deciding on a managing director for USL when the current one, Ashok Capoor's three-year term ends by May next year. "The announcement might be made at least six months before that date, so that the transition can be effectively structured," a senior UB Group official explained.

Analysts say integration will be complex and take at least three years for synergies to get reflected. A spokesperson for Diageo said, “Diageo and USL will naturally explore opportunities for mutual enhancement of our businesses but at this time, we are unable to speculate as to what these could be.” Diageo has been running its own direct operations in India, in which it employs 300 people and, indirectly, another 350 who work exclusively for Diageo India. In addition, it works with contract manufacturers in various states which distill and bottle its brands. Diageo is understood to be selling a little more than a million cases of spirits annually.

USL tops the market, with 123 million cases of the total of 305 million sold in 2012-13; it has 40 owned and 42 contracted plants across almost all states. USL employs around 6,000 people and controls as much as 59 per cent for its first line brands, reaching a phenomenal 64,000 outlets.

Senior UB Group officials confirmed wide-ranging discussion with Diageo and the possibility of overlap in operations, needing to be sorted out. USL has around 750 company sales personnel, supported by approximately 900 third-party merchandisers & promoters.

Diageo distils brands such as Smirnoff vodka, Captain Morgan rum and its Indian Made Foreign Liquor brand, Rowsons Reserve, in India. Some of its famous Scotch products are bottled here, too. Brands such  as Smirnoff and VAT 69 are expected to get a good boost through the USL distribution network, to start with.