Business Daily from THE HINDU group of publications
Tuesday, May 22, 2007
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Business Daily from THE HINDU group of publications Tuesday, May 22, 2007 ePaper |
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Breweries Corporate - Mergers & Acquisitions How the scotch stock was key to UB deal D. Murali
Chennai May 21 In the world of M&As (mergers and acquisitions), it is no news that moneys are borrowed for the big buys. Yet, the recent UB deal was different in more ways than one, compared to the usual transactions. For one, it involved the raising of funds to the tune of £635 million, as against £595 million required for acquiring 100 per cent equity in Whyte & Mackay; the difference was explained as for meeting working capital requirements. The other difference was that the leveraged buyout used a special asset of Whyte & Mackay as collateral for the loans: Inventory of Scotch whisky. "The inventory, valued at £380 million holds a strategic significance in concluding the deal," says Mr Amitabh Chakraborty, President (Equity), Religare Securities Ltd, Mumbai. "A key logic of the deal is the 115 million litres of bulk scotch inventory of Whyte & Mackay that United will import to bottle in India for the domestic market."
Value accretive
The deal is value accretive to United Spirit shareholders, he adds, speaking to Business Line. United Spirit's takeover of Whyte & Mackay for $1.18 billion will make the group the world's second largest spirits company with combined sales of 75 million cases. Post acquisition, United Spirit will have huge advantage against other imported brand, according to Mr Chakraborty. There can be a tax impact, he says. "United will be able to avoid 400 per cent duty on imported bottled Scotch whisky. Duty on bulk import is 200 per cent."
Major hub
With burgeoning consumerism, demand for Scotch whisky in India is increasing by about 30 per cent per annum. "India will become a major hub of scotch to be bottled here and exported to China, among world's top 10 markets, which imported $115-million worth Scotch whisky in 2006." He believes that United will be able to sell more of premium Scotch whisky in India and export to China. "Also, blended scotch sales will increase domestically which will push United's margin significantly." Enterprise value (EV) of the target has been pegged at 21 times of `earnings before interest, taxes, depreciation and amortisation' (EBITDA) for the financial year 2006. Commenting on the deal valuation, Mr Chakraborty says, "An EV/EBITDA of about 21x FY06 is justified, because scotch is in short supply globally."
Related Stories: More Stories on : Breweries | Mergers & Acquisitions
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