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Times of India: Invergordon Sale May Satisfy UK Concerns in Diageo’s United Spirits Deal

May 29, 2013 – The Times of India reports Vijay Mallya’s United Spirits is prepared to consider selling Whyte & Mackay’s Invergordon grain whisky distillery in Scotland to help smooth the way for USL’s acquisition by drinks giant Diageo. A sale of Invergordon is seen as one way to resolve concerns raised by the UK’s Office of Fair Trade over the $1.7 billion deal.

The Times report cites sources familiar with USL’s plans as saying the concerns are over market share in grain whisky production. Diageo already owns the massive Cameronbridge grain whisky distillery and a 50% share in the North British grain whisky distillery (Edrington owns the other 50%), and the Office of Fair Trade is reportedly concerned that adding Invergordon to that portfolio would violate UK competition laws.

In addition to Invergordon, Whyte & Mackay owns the Dalmore, Jura, Fettercairn, and Tamnavulin malt whisky distilleries. However, the Office of Fair Trade is reported to not have concerns over the acquisition of those distilleries, which Diageo CEO Paul Walsh has indicated would be surplus to the company’s needs. Industry analysts have speculated that the malt distilleries could be sold.

Earlier this week, the Financial Times reported Diageo 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.

The Times of India report follows a  Business Standard report May 21 on the Office of Fair Trade’s concerns over the deal:

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.

However, the May 28 Times of India report indicates that the UK regulators would be satisfied with a sale of the Invergordon facility and not require Diageo and USL to sell the entire Whyte & Mackay unit.

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 reports. This story will be updated with their responses.

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