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UB plans $1bn buyout kitty

Calcutta, Dec. 27: The UB group, which is very close to acquiring Scotch whisky maker Whyte & Mackay, is likely to float a public issue or make a private placement of shares to fund the buyout.

“We have drawn up a significant overseas acquisition plan for 2007 and a little less than $1 billion has been earmarked for acquisitions,” UB group’s chief financial officer and president Ravi Nedungadi said today.

After acquiring French winemaker Bouvet Ladubay SAS for $15 million earlier this year, the UB group started scouting for a Scotch whisky maker. Speculation on the Whyte & Mackay acquisition has swirled for several months but Nedungadi preferred to play coy. “I’m neither denying nor admitting media reports about the acquisition.” However, he admitted that they were talking to a whisky maker in Scotland.

Glasgow-based Whyte & Mackay, which had a marketing tie up with the UB group, initially offered a sale price of £600 million for its assets that include Dalmore and Jura single malt whisky brands, Vladivar vodka and Glayvar liqueur.

However, the UB group’s flagship spirits division McDowell had valued Whyte & Mackay’s assets at £400 million. In November, UB raised its bid price to £473 million as Whyte & Mackay did not agree to its initial offer price.

According to a report by The Scotsman, “Vijay Mallya and Vivian Imerman, the chairman of Whyte & Mackay, are closing in on a deal which sources believe should see the distiller change hands as early as January. Mallya is understood to have balked at a £600m price tag put on Whyte & Mackay by part-owner Imerman.”

However, sources say the two sides are homing in on a deal that would value the distiller at around £500 million.

Meanwhile, the UB group has formed a trust consisting of treasury stocks to fund its future acquisitions, including Whyte & Mackay. Treasury stocks are shares that were once a part of the floating stock but were subsequently repurchased by the company and decommissioned. A company can decide to hold on to treasury stocks indefinitely, reissue them to the public, or even cancel them.

There are about 17 million treasury stocks deposited in the UB group’s trust at an average price of Rs 850 per share. The current value of these treasury stocks works out to around Rs 1,500 crore (a little over $330 million). According to Nedungadi, the company has this money at its disposal to finance acquisitions.

“We have earmarked $1 billion for overseas acquisitions so that we don’t have to dilute our equity too much,” he added. At current prices, $1 billion is equivalent to a little more than £500 million. So, even if the Whyte & Mackay deal is sealed at £500 million, the UB group may have to sell some equity in the market to raise the additional funds in excess of the trust reserves.

“We may go in for borrowings or tap other options to raise funds,” he added.

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