The Hindu Business Line : UB deal: `Distribution synergies will not be easy to realise'

The distribution networks of United Spirits and Whyte & Mackay combine gives an opportunity to cross-pollinate their respective brands in the other's markets.

D. Murali

Chennai June 2

`Spirited flight!' exclaims Mr Sandeep Dhupia, Executive Director, KPMG, talking to Business Line about the recent UB-Whyte & Mackay deal.

"Yet another Indian corporate house negotiates a cross-border acquisition, signalling once again to the overseas market that Indians are serious and successful contenders in the global M&A (merger and acquisition) market and should not be taken lightly or as `also rans'," he says.

"The Indian businessman is here not only to run but to win the M&A race. And this is a sign of things to come."

Excerpts from an interview.

On the outbound acquisition appetite.

Increasingly, Indian business houses will look to acquire cross-border assets. Today, this ambition and aspiration to be global players is underpinned, very importantly, by the increasing economic clout at the back of the economy's strong financial performance for three consecutive years, the ability to raise funds overseas, and the willingness of lenders abroad to lend.

On what the deal achieves for the UB group.

First, it fills up the significant "scotch" gap in the group's portfolio. The deal catapults UB to become the second largest "alcohol" player globally and the fourth largest "scotch" company. With a ready access to 115 million litres of scotch inventory, and significant manufacturing capacity of 40 million litres (grain) and 12 million litres (malt), the group gets almost a tenth of the global market share for Scotch whisky.

On what the acquisition means for United Spirits.

It gives United Spirits access to a host of international brands and a ready international distribution network. The ready scotch inventory gives the company "speed to the Indian market" to take on popular competitor brands such as 100 Pipers, Chivas Regal etc. The inventory also gives United Spirits ready access to raw material that it uses to blend with its Indian made liquor.

The respective distribution networks of United Spirits and Whyte & Mackay give the combination the opportunity to cross-pollinate their respective brands in the other's markets.

On the risk factors in the deal.

The deal is highly leveraged and the group will need to deal with this. One must also be mindful of the group's need for resources for its other capital-intensive "airline" business. The distribution synergies will not be easy to realise; after all, United Spirits' brands are not known outside, and as far as Whyte & Mackay is concerned, apart from its flagship brand, the others are far less known.

On strategies, post-deal.

The combination will have to work really hard at positioning its brands. In India, with no advertising permitted, Whyte & Mackay will strive hard to share shelf-space with the likes of Chivas, 100 Pipers, and others.

In sum, therefore.

Overall, this deal is all about scale and global play. Just as in the case of some of the other "large ticket" cross-border deals by Indian corporates, this one too will be a "test case" and in 18-24 months' time we will be debating as to how the die finally rolled, whether the synergies were realised, was shareholder value created, and this will then set the stage for the course India Inc. will charter thereon.

More Stories on : Interview | Breweries | Mergers & Acquisitions

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