Liquor baron Vijay Mallya's United Breweries Ltd (UBL) today announced it had entered into a strategic equity alliance with Scottish & Newcastle (S&N).
Britain's top brewer will invest Rs 940 crore for a 37.5 per cent stake in UBL, with Mallya and his group also holding a similar stake.
The deal will help Scottish & Newcastle further expand its presence in the booming Indian beer market. The UB group gets the opportunity to push its Kingfisher brand overseas in a bigger way.
"The Kingfisher beer brand will also receive a significant boost in overseas markets through S&N's wide distribution network," said Vijay Mallya, chairman, UBL. Kingfisher has a market share of 29 per cent in India and is sold in 52 countries across the globe.
Said Tony Froggatt, chief executive of Scottish & Newcastle: "Though we paid a premium for our investment, it is worth it. This represents a significant expansion of S&N's presence in India. We expect our investments to yield positive returns within five years." Inbev, the world's largest brewer in volume was also in the race for picking up a stake in UBL.
S&N will get 17.5 per cent of UBL's equity through a preferential allotment by paying Rs 217 crore, or Rs 575 per share.
S&N will then make a public offer to acquire up to 20 per cent of the shares of UBL at the same price (Rs 575 per share). S&N will further invest Rs 247 crore in UBL by way of redeemable preference shares (non-convertible) with a coupon rate of 3 per cent.
If S&N does not manage to get 20 per cent in the open offer, UBL will issue warrants of the required amount to make sure S&N's stake stands at 37.5 per cent.
Mallya currently holds about 50 per cent of the equity—he personally holds about 10.78 per cent and his investment companies and other UB group entities hold 39.10 per cent of the Rs 17.82 crore paid-up capital of UBL. With the infusion of funds by S&N, the paid-up capital will increase to Rs 21.6 crore.
UBL has well-known beer brands like Kingfisher, Kalyani Black Label, London Pilsner, UB Export, UB Ice and Jaguar.
In 2002, S&N had announced it was investing Rs 440 crore in Mallya's beer business. It subscribed to redeemable optionally convertible preference shares (ROCS) of around Rs 213.84 crore in UBL and gave another Rs 50 crore as a commercial loan.
The remaining Rs 177 crore was invested in a 40 per cent stake in Millennium Alcobev (MABL), which owns beer brands like Zingaro and Sandpiper, among others. UBL holds 40 per cent of the company's equity and 20 per cent is held by MABL Managing Director Ravi Jain.
Mallya said: "During our honeymoon period in the joint venture (MABL), we had got to know each other. We have now achieved a congenial relationship and hence decided to conclude a financial partnership with them in UBL."
With the alliance with S&N, UBL was financially and technically strengthened to further increase its market leadership, Mallya added.
The funds received from S&N would be used for expanding the group's businesses and restructuring of financials, UB group executives said.
Mallya added MABL operations would be integrated with UBL, as a result of which UBL's beer market share would go up to 50 per cent. Though no immediate merger of MABL and UBL was being contemplated, Mallya did not rule out that possibility. Mallya will continue as chairman of UBL and will have the right to nominate the chief executive officer of UBL. Kalyan Ganguly, currently the managing director of UBL, will, in all probability, be CEO. Similarly, S&N would have the right to nominate the chief financial officer of UBL.
The Rs 247 crore brought in by S&N will be used to repay the ROCS of about Rs 200 crore, UB group executives explained.
UBL was advised by Ambit Corporate Finance and S&N was advised by DSP Merrill Lynch on this transaction.