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Competition glare on deal

Mumbai, Nov. 9: Competition issues could cast a cloud over Diageo’s buyout of a controlling interest in United Spirits Ltd (USL).

USL had a 41 per cent market share of the Indian spirits market in 2011, according to Euromonitor.

Pernod Ricard — the world’s second-largest spirits company — was next with a 9 per cent share. Radico Khaitan and Allied Blenders and Distillers have 6 per cent each.

Diageo plans to acquire a 53.4 per cent stake in USL through a three-stage process. The agreement says that the USL transaction will require clearance from the Competition Commission of India.

“The regime governing such clearances has only been in force from June 1, 2011 and, accordingly, there is limited precedent as to how these regulations might be applied and how the CCI might utilise the power available to it,” Diageo said in its note.

There has been some talk on how competition issues could play out for Diageo in Europe as well where it is already the largest spirits maker.

Vijay Mallya had acquired two big brands some years ago — Bouvet Ladubay of France and scotch whisky maker Whyte and Mackay. One view is that Whyte and Mackay may have to be corralled so that Diageo doesn’t run foul of the regulator.

The share purchase agreement between Diageo and Mallya also stipulates two vital conditions to the deal: first, that it could involve consents or waivers from certain lenders to the USL group and, second, the release of all security and encumbrances over the USL shares that are being sold under the agreement.

Data on the BSE website show that 2.29 crore shares of the 2.35 crore shares in USL held by United Breweries Holdings — or 97.32 per cent — were encumbered as of September 30. These are obviously part of the deal and will have to be unencumbered before they can be sold.

That is one of the reasons why the deal talks about a long-stop date of November 9, 2013 — one year later — for satisfaction of all the conditions required its completion.

 
 
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