United Distillers, Ub Talk Divorce

United Distillers, the UK-based spirits major, is negotiating with the Vijay Mallya-promoted United Breweries to discontinue the 50:50 joint venture company set up by both the companies in India--United Distillers India (UDIL).

The UDIL chief executive officer, David Jones, will be meeting Vijay Rekhi, president, UB (spirits division) on Thursday in Bangalore to discuss the issue of discontinuance of the joint venture company which was set up four years ago.

Speaking to Business Standard, David Jones, said: United Distillers has proposed the discontinuance of UDIL to United Breweries given that UD, which owns 50 per cent equity in UDIL, will shortly be merged with IDV (International Distillers and Vintners) to form UDV (United Distillers and Vintners). Since UDV would already have an existing joint venture with Polychem, it would be against the interests of the company to have a second joint venture in the country, given the small size of the Indian market. However, there are several issues to be discussed and the local partner should agree to it.

 

Jones categorically denied there was any possibility of UD selling off its 50 per cent equity in the joint venture. Withdrawing from UDIL would mean a breach of contract and UDV would certainly not decide upon such an option, said Jones.

In the event of discontinuance of UDIL, both partners would have to write off accumulated losses to the tune of Rs 7.6 crore. The four brands of scotch already launched in India by UDIL including Vat 69, Black Dog, White Horse and Black & White would continue to be marketed, though under a separate arrangement.

The brands would either be sold by the UDV-Polychem joint venture or any Mallya group company. UD has reiterated that it is keen to supply bulk scotch concentrates to UB even outside the joint venture contract, provided the government allows such a contract.

In the case of UB not agreeing to terminate the joint venture contract with UD, which has a life term of another six years, UD will remain in the partnership till the termination period.

However, after a lapse of six years, UD is likely to discontinue the joint venture partnership since the long term plan of UDV, is to have one single operation in India which would introduce the entire product portfolio of both the companies in the country, Jones pointed out.

The move to discontinue the joint venture company comes in the wake of the global merger of Guiness Plc and Grandmet Plc which has necessitated the merger of IDV and UD to form UDV.

In India, while UD had entered into a 50:50 joint venture with UB to form UDIL, IDV had tied up with the Maharashtra-based Polychem to form a 60:40 joint venture named IDI.

In case the negotiations to discontinue UDIL falls through, the other options which are being explored by the companies include the buyout of UBs equity from the joint venture company by UDV or else the broad merger of all the four partners. Another option is to form a separate division within UDIL which would market the entire range of product from both the companies in the Indian Manufactured Foreign Liquor (IMFL) category and UDV continues to have two operations in the country.