Financial Daily from THE HINDU group of publications
Monday, Dec 20, 2004
Corporate - Mergers & Acquisitions
S&N to pick up 17.5% stake in UB To make open offer for another 20 pc at Rs 575 a share
Mumbai , Dec. 19
LEADING European Brewer, Scottish and Newcastle (S&N) is to become the strategic partner of United Breweries Ltd with an equity stake equal to that of promoter Mr Vijay Mallya and his group, under a deal signed here on Sunday.
Announcing the deal that will cost S&N Rs 940 crore, at a press conference, Mr Mallya said both parties will hold equal shares not exceeding 37.5 per cent each in UBL - the largest beer maker in the country.
S&N is currently the joint venture partner of UBL in Millennium Alcobev (MABL), the country's third largest brewer.
As part of the deal, the board of directors of UBL today decided to make a preferential allotment of about 38 lakh shares constituting 17.5 per cent of the paid-up equity capital of the company, to S&N at a price of Rs 575 per share, aggregating Rs 217 crore.
The Edinburgh-based S&N will make a public offer to acquire another 20 per cent at the same price of Rs 575 per share.
Post-open offer, S&N will hold 37.5 per cent in UBL whereas Mr Mallya's stake will come down from 51 per cent to 37.5 per cent.
If the foreign company fails to get 20 per cent shares through the public offer, the company will issue warrants to enable it to shore up its stake at 37.5 per cent, Mr Mallya said.
The European partner will also invest another Rs 247 crore in UBL by way of a non-convertible redeemable preference shares with a coupon rate of 3 per cent.
Operation of MABL, in which S&N has already invested Rs 177 crore, will be integrated with UBL pushing up the latter's share in the beer market to 50 per cent.
Mr Mallya would continue as Executive Chairman of UBL, with the right to nominate the Chief Executive Officer and the Managing Director.
S&N would, in turn, have the right to appoint the Chief Financial Officer. The nine-member board will also have three independent directors.
Tapping S&N's strengths: According to Mr Mallya, S&N was chosen over other companies for valid reasons, an important one being the integration of MABL's operations, which would give UBL a more than 50 per cent share of the beer market, he said.
The experience of working with S&N in MABL and "the congenial and harmonious relationship" the two companies had developed also weighed in while making the choice.
Among the other benefits that S&N brought to the table were its technical inputs and a global sourcing base.
In partnership with S&N, UBL hoped to grow its market share and present effective competition to SABMiller, Mr Mallya said.
The deal, he said, would cheer shareholders, with the shares ruling now at over Rs 500 as against the Rs 180 four months ago. The open offer price is Rs 575 per share.
S&N's strong global distribution network would be used to establish Kingfisher as a global brand, he said.
The launch of S&N's foreign brands such as Kronenbourg depended on how the market developed. Mr Mallya pointed out that the beer market was price sensitive and was governed by a number of guidelines, which sometimes were not conducive to building a new brand.
Besides, the experience of brands such as Castle Lager had shown that there was no guarantee that an international brand would click.
The trend in most beer markets was that the traditional brands continued to retain their leadership, he said.
The Chief Executive of S&N, Mr Tony Froggatt, said the company had expanded through partnerships globally and had a powerful global business, especially in Europe, which is the world's largest beer market.
Terming the company as a long-term player and a brand-builder, he said S&N was excited about the prospects of the Indian market not just today, but also its huge future potential.
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