Updated May 28, 2013 – Diageo is still acquiring shares of Indian liquor magate Vijay Mallya’s United Spirits (USL) in an attempt to gain majority control of the company. The Financial Times reports Diageo has paid around £300 million ($451.5 million USD) for a 10% preferential allotment of USL shares, on t0p of the 27.4% of the company Diageo agreed to acquire last November. The drinks giant’s mandatory bid required by Indian law to acquire another 26% stake of USL shares on the open market failed to generate interest, since the shares have been trading at a significant premium to Diageo’s fixed offer price.

However, the delay in acquiring that majority stake appears to be buying Diageo some time to work on a solution for one side effect of the acquisition. USL’s ownership of Scotland’s Whyte & Mackay has been seen as a potential issue since the deal with Diageo was announced, since it poses potential competition issues in the Scotch whisky market.

The Business Standard reports that the UK’s Office of Fair Trade has expressed concerns over the deal, since Diageo already controls around 35%  of Scotch whisky production and sales. Whyte & Mackay owns its namesake blended Scotch, the Dalmore, Jura, Fettercairn, and Tamnavulin malt whisky distilleries, and the Invergordon grain whisky distillery.

Even as Diageo is waiting to take charge of managing USL, it is understood to be actively working with Mallya on addressing the concerns of the Office of Fair Trade in London over majority control of Whyte & Mackay, a subsidiary of USL in Scotland. According to industry observers, Diageo might have to offload majority stake in Whyte & Mackay to clear this hurdle and steps are being taken in this regard. Advisors to the UB Group have, however, indicated there is around six months to address that issue, after the closure of the deal in India.

If the Office of Fair Trade decides to take formal action, that would lead to the case being referred to the UK’s Competition Commission for a final decision. The remedies could range from Diageo being ordered to sell a majority stake or all of Whyte & Mackay to selling off other parts of its whisky portfolio. The Commission could also rule that the deal would not be anti-competitive and allow it to go forward with no divestment necessary.

A spokesman for Whyte & Mackay referred requests for comment on the report Monday to United Spirits and Diageo, noting that the deal and its ramifications are a matter for those companies.  A spokesman for United Spirits told WhiskyCast in an email Monday that the company does not respond to “market speculation”.

WhiskyCast has also reached out to Diageo and the Office of Fair Trade for comment on the Business Standard report. This story will be updated with their responses.

Links: Diageo | United Spirits | Whyte & Mackay | UK Office of Fair Trade