United Spirits Ltd. (UNSP) jumped to the highest in more than a year in Mumbai trading after four people familiar with the matter said Diageo Plc (DGE) may buy a stake in the whiskey maker controlled by billionaire Vijay Mallya.
United Spirits rose 6.1 percent to 1,054.40 rupees at the close of trading in Mumbai today, the highest since July 2011. The stock was the biggest gainer on the 10-member BSE India Fast Moving Consumer Goods Index. (BSETMCG)
Diageo, the world’s biggest distiller, and United Spirits may announce a deal by next month, a person with knowledge of the matter said, asking not to be identified as the discussions are confidential. United Spirits’ Chairman Mallya, who owns 28 percent of the company, will continue to be a shareholder, the people said in comments published Sept. 21 by Bloomberg News.
Mallya needs money to help finance Kingfisher Airlines Ltd. (KAIR), which is struggling with losses and a cash shortage. He gave 59 billion rupees ($1.1 billion) of guarantees last year to Kingfisher’s lenders, according to the company’s annual report. The carrier needs $600 million in the next two months, industry consultant CAPA Centre for Aviation said in August.
“They can get expertise, distribution, exposure to foreign countries,” Sharan Lillaney, a Mumbai-based analyst with Angel Broking Ltd. said, referring to the benefits of a deal for United Spirits.
Diageo may get the right to appoint a majority of United Spirits’s board members, including the chairman, one of the people familiar with the discussions said.
“The real attraction here for Diageo is to acquire a large platform in local spirits which will allow it to capture the lion’s share of growth of Scotch in India,” Ian Shackleton, an analyst at Nomura in London, wrote on Sept. 21. The Indian market for spirits was $3.9 billion in 2011, Nomura estimates.
Diageo has made acquisitions including Turkey’s Mey Icki raki brand as part of its push to expand in emerging markets and cash in on booming economies. Its talks in 2009 to take a minority stake in United Spirits collapsed after the Indian distiller said Diageo’s offer wasn’t at a fair value.
Diageo already distributes its brands in India through its own network, and sales grew 24 percent in the country in the year through June 30, the company said, driven by “strong momentum across the scotch portfolio.” Diageo introduced a locally made whiskey, Rowson’s Reserve, last year to compete with other local brands owned by United Spirits and competitor Pernod Ricard SA, and sells Johnnie Walker there.
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