Pankaj Kumar Baid

Acquisition of Whyte & Mackay by United

Brewery Group (USL) 

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UB Group’s Aggressive Growth History

• Started and expanded into beer and spirits business mainly through acquisitions

• Acquired Shaw Wallace,

• Brought in Scottish New Castle in UBL

• Acquired 100% stake in Whyte and Mackay, worlds 4th largest scotch company

• Kept acquiring smaller players in beer and liquor industry. BUILT BRANDS LIKE KINGFISHER, BAGPIPER, BLACK DOG

• Legal Merger of Shaw Wallace completed;

• UBL and Heineken strike a deal: brings APB / Heineken brands

• Organised Spirits business under USL and Beer business under UBL

• Launched Kingfisher Airlines

• Dr. Vijay Mallya took over the reins of the Group at a tender age of 28

• Completed merger of Deccan and Kingfisher to form the largest pvt. airline

No. 1 Beer in India

No. 1 Spirits in India

No. 1 Airline in India

1983–2002 2003 20051950–1982 2007 2008 2009

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UB Group

United Spirits Ltd.,No. 1 Spirits Company

in India

• 2nd largest spirits company in the world and largest spirits company in India with a market share in excess of 55% in first line brands

• Key brands are Dalmore, Jura, Whyte & Mackay, Black Dog, Antiquity, Signature, Royal Challenge, McDowell's No.1, Celebration Rum, Romanov and White Mischief

• Undisputed leader of the Indian beer industry with over 50% market share

• Key brands are Kingfisher Blue, Kingfisher Strong, Kingfisher Premium, Kingfisher Ultra, Kingfisher Draught, London Pilsner, UB Premium Ice, Kalyani Black Label Premium and Kalyani Black Label

United Breweries Ltd.,No. 1 Beer Company in

India

• ‘Best Airline in India and Central Asia’, ‘Best Economy Class Seats’ and ‘Staff Service Excellence Award for airlines in India and Central Asia’ in World Airline Awards (May, 2010)

• India's only 5 Star airline, rated by Skytrax and 6th airline in the world for 3rd consecutive year (May, 2010)

Kingfisher Airlines Ltd.,No. 1 standalone

Airline in India

• Diversified presence across businesses including equity investment in Mangalore Chemicals & Fertilizers Ltd. and UB Engineering Ltd., investment in Vittal Mallya Scientific Research Foundation and franchisee for IPL team “Royal Challengers”

Diversified Business Interests

United Breweries Group

Founded by Thomas Leishman in 1915.

India’s largest brewery 140 brands in portfolio like

Bagpiper whisky, McDowell No.1, Director’s special whisky, McDowell No.1 Brandy, Premium Ice, Kalyani Black Label etc..

Domestic market share in excess of 50%

For maintain leadership position they made multifaceted strategic alliance with Scottish and New Castle PLC

Synergies from Shaw Wallace Acquisitions

Increased scale – price increase from improved negotiating power.

Increased usage of single Completely Built Unit (CBU) to improve throughput.

Extra Neutral Alcohol (ENA) procurement pattern and spirit movement planning.

Rationalization of terms of trade reduction in spends, personnel and overheads.

The merged entity was called United Spirits. The UB Group has paid Rs. 1,545 crore for the acquisition, which includes Rs. 312 crore for 25 per cent shares acquired through the open offer.

Whyte & Mackay

Founded by James Whyte and Charles Mackay in Scotland

4th largest whisky maker in the world with turnover of $283 mn

Major brands like Isle of Jura, Dalmore, Vladvir Vodka and W&M Scotch.

No. of employees : 700 Working on the philosophy of ‘all good

things come to those who wait’.

0

20

40

60

80

100

1988 2008Value StandardPremium Super Premium

20-Yr CAGR

13.7%

4.7%

0.3%

1.5%

Volu

me (

Mn

. C

ase

s)Volu

me (

Mn

. C

ase

s)

20-Yr CAGR

4.4%

0.1%

4 Yr CAGR(2004-08)

* 2-Yr CAGR

Global Scotch whisky market is growing at a value

CAGR of about 7% ( 2004-09) which is significantly

higher than volume CAGR of about 2%.

W&M’s average branded business realization for

relevant vintage is 4 to 4.5 times that of bulk

business

Clear premiumization trend in Scotch with premium

scotch segments growing at a faster pace than

standard/value scotch segment.

Single Malt whisky segment has grown significantly

higher than blended scotch whisky with a volume CAGR

of about 6%.

Increased preference for higher vintage scotch and

single malt whiskies.

Sustained growth in large emerging markets of

China, India, Russia, Brazil, and South Korea over

the last decade.

Global Scotch Whisky market has seen resilient growth with strong support coming from large emerging markets

Premiumization trend in scotch whisky segment

Growth trend in emerging markets

Status in Indian Liquor Industry

Indian Liquor Industry divided in two parts: Indian Made Foreign Liquor

(IMFL) – 200mn cases per annum and per capita consumption around 2.1 liters per annum

Bear Segment – 91 mn cases per annum.

In 2006 Union Budget Govt. impose 4% Counter Veiling Duty on liquor industry which strengthens the position of domestic company.

Structuring of Deal (Jan 2007)

By Leveraged Buy Out Debt is secured by the assets of the acquired business & the

cash flows of the acquired business will be used to service the debt

Deal was worth Rs.9484.84 Crs @ Exchange Rate of 80.38 Rs /GBP Special purpose vehicle – “United Spirits” newly launched

company UB paid GBP 505 Million which accounted 100% stake in Whyte

& Mackay which formed the equity component of the newly launched company United spirits 

Debt to equity ratio of newly launched company 1.336 UB stake in United spirits is limited to its equity investment of

505 Million GBP . The Assets of W&M would be transferred to the balance sheet of united spirits which would be used to collateralize the debt taken for Acquisition

Financing of the deal (Jan 2007)

Acquisition finance to USL was provided by ICICI Bank & Citibank

Debt of £ 325 mn loan (9 yrs.) extended by ICICI Debt of £ 210 mn (5 yrs.) extended by Citibank Advisors to the Buyer and Seller

Buy side - United Bank of Switzerland Sell side – Citigroup

The UB Group parted-fund the acquisition by selling a part of 17 million shares it has deposited in a trust for this purpose.

W&M expected operating profit of 50 Mn in 2007 and this was expected to take care of the interest costs for the acquisition and it actually did happen.

New Business Initiatives

MOU with Russian Standard Company China Initiatives Wine business New product initiatives

Marketing Initiatives

Portfolio Strategy Luxury Brands Emerging Premium Brands Power Brands

Synergies from Acquisitions

Whyte & Mackay Sales climbed around 4% to £149 mn

compared with 2004. The deficit in shareholder’s funds was reduced by more than £12 mn to £1.5mn

Synergies from Acquisitions United Breweries Group

 To increase the brand portfolio USL's consolidated sales up by 75 Mn cases p.a.  Hold on Inver Gordon Distillery, near Inverness and malt

whisky distilleries in Scotland Bottling facility in Grangemouth with a capacity of 12 million

cases annually. Enter into the Russian and China Market Self sufficient for Scotch requirement Brand image of Whyte & Mackay Import tariff avoided and brand can be sold at higher

margins. United Spirits shares closed at Rs 895.20, up 6.88 per cent.

(Currently trading at Rs 729.20)

Budget 2012 effects on Indian Liquor Industry

The Finance Minister delivered a punch by ordering a Excise duty hike on Packaging.

The rise of excise duty on Packaging material is by 2%.

Steep increase in cost of glass bottles off late estimated to be around 8-9%.

Impact of around 55crores annually United Spirits Limited.

Increase in Service tax by another 2% would result in margins getting affected due to the service tax on bottling.

ENA (Extra Neutral Alcohol) is also going through a volatile pricing period.

United Spirits: Raw Material Cost

United Spirits : Glass Cost Movement

A BIG THANK YOU TO