Acquisition of Whyte & Mackay by United Brewery Group (USL)

Pankaj Kumar Baid

No. 1 Beer in India

No. 1 Spirits in India

No. 1 Airline in India

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

Organised Spirits business under USL and Beer business under UBL Launched Kingfisher Airlines

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

19501982

19832002

2003

2005

2007

2008

2009

Started and expanded into beer and spirits business mainly through acquisitions

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

Acquired Shaw Wallace, Brought in Scottish New Castle in UBL

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

Legal Merger of Shaw Wallace completed; UBL and Heineken strike a deal: brings APB / Heineken brands

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

Kingfisher Airlines Ltd., No. 1 standalone Airline 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)

Diversified Business Interests

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

Founded by Thomas Leishman in 1915. Indias largest brewery 140 brands in portfolio like Bagpiper whisky, McDowell No.1, Directors 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

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.

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.

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&Ms average branded business realization for relevant
Volume (Mn. Cases)

Premiumization trend in scotch whisky segment

20-Yr CAGR

100
80

60 40
20

13.7%
4.7%
Value Premium

vintage is 4 to 4.5 times that of bulk business

0
1988 2008 Standard Super Premium

0.3% 1.5%
4 Yr CAGR (2004-08)

Clear premiumization trend in Scotch with premium scotch segments growing at a faster pace than standard/value scotch segment.

Growth trend in emerging markets

Single Malt whisky segment has grown significantly higher than blended scotch whisky with a volume CAGR of about 6%.

Volume (Mn. Cases)

20-Yr CAGR

Increased preference for higher vintage scotch and single malt whiskies.

4.4 % 0.1%

Sustained growth in large emerging markets of China, India, Russia, Brazil, and South Korea over the last decade.
* 2-Yr CAGR

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.

 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

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

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.

Buy side - United Bank of Switzerland Sell side Citigroup

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

Portfolio Strategy
Luxury Brands Emerging Premium Brands

Power Brands

Whyte & Mackay

Sales climbed around 4% to 149 mn compared

with 2004. The deficit in shareholders funds was reduced by more than 12 mn to 1.5mn

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)

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.

A BIG THANK YOU TO