July 9, 2013 – Diageo executives spent the better part of a year negotiating and then trying to close the deal for a majority stake in India’s United Spirits, only to wind up with management control and a 25% stake in the company. Now, they face another round of negotiations over the fate of Whyte & Mackay, the United Spirits-owned Scotch whisky producer.

During the United Spirits share tender process, several news organizations reported that the U.K.’s Office of Fair Trading (OFT) had privately expressed reservations over the merger. Diageo already controls about 38% of Scotch whisky production, and while outgoing CEO Paul Walsh has said that Whyte & Mackay would be surplus to the company’s needs, that’s believed to apply to the four Whyte & Mackay malt whisky distilleries (Dalmore, Jura, Tamnavulin, and Fettercairn). The OFT is said to be concerned about Whyte & Mackay’s Invergordon grain whisky distillery near Inverness and the impact on competition. There are seven grain whisky distilleries in Scotland producing whisky to be used in Blended Scotches, and Diageo already owns 100% of Cameronbridge and 50% of the North British Distillery in a joint venture with The Edrington Group.

In May, the Times of India reported that Whyte & Mackay was considering the sale of Invergordon as a way to satisfy the regulatory concerns. While the Office of Fair Trading has not responded to requests for comment, a Diageo spokesperson issued this response in an email to WhiskyCast’s Mark Gillespie:

“Now that we have closed the deal, we will be engaging appropriately with the OFT and anticipate filing in due course. It would be inappropriate to comment further at the moment.”

The email did not respond to questions about whether the entire unit would be put up for sale or whether management changes are planned.

Whyte & Mackay has referred all questions about the merger to United Spirits executives in India, and a United Spirits executive has told WhiskyCast that the company does not respond to “market speculation”.

This story will be updated as new information becomes available.

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