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Bangalore, Dec.1 United Spirits Ltd (USL) has consolidated its presence in Tamil Nadu with the acquisition of its contract manufacturing unit, Balaji Distilleries in an all stock deal.

A press statement from the company said the Board of Directors of USL at its meeting held on Monday approved the merger of Balaji Distilleries Ltd (BDL) into USL in an all stock deal. The merger will be effective from April 1, 2009. Based on the recommendation by the independent valuation firms, the boards of both companies agreed that on a fully diluted basis, shareholders of BDL, will be allotted two shares in USL for every 55 shares held in BDL.

The UB Group Chairman, Mr Vijay Mallya, said this merger would de-risk USL’s significant earnings in an important market and would give UB the advantage to consolidate the group’s leadership position in a critical, large and growing State.

BDL has been a contract manufacturing unit for UB Group ever since its inception in 1983. The distillery has a capacity to produce 10 million cases a year while the brewery has a capacity of 9 million dozens a year expandable to about 12 million dozens. The UB Group sells about 12 million cases each of the spirits and beer in Tamil Nadu, growing at about 15 per cent annually. Tamil Nadu accounts for nearly 15 per cent of the company’s national volumes. The State ranks fifth in terms of contributions to USL’s bottomline.

USL has a market share of about 51 per cent in first line brands in the State. The Tamil Nadu market accounts for almost 18 per cent of UB Group’s brewing business and about 19 per cent of its national contribution. BDL accounts for 60 per cent of UB’s beer volumes in the State.

UB enjoys 59 per cent market share in the State’s beer market with 73 per cent share in mild segment and 54 per cent share in strong segment. Tamil Nadu is the only key State where USL does not own a production facility, primarily due to regulatory constraints that prevented setting up of new units, and also transfer of existing licences.

The State also does not permit import of products from outside Tamil Nadu. The company’s ability to realise full potential in the State has been held back mainly on this account. This acquisition would give it the required leeway to meet the increasing demand for its brands in the State, the statement said.

The valuation was carried out by Grant Thornton and Lodha & Co. PricewaterhouseCoopers Pvt. Ltd. and Ambit Corporate Finance Pte Ltd., advised the company on the transaction.

United Spirits has posted a 37 per cent decline in net profit to Rs 311.28 crore for 2007-08 while its total income grew 15.52 per cent to Rs 3,210.03 crore.

More Stories on : Mergers & Acquisitions | Breweries

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