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Nath Balakrishnan

IT is A good opportunity for the shareholders of Shaw Wallace to exit by tendering their holding to the open offer made by McDowell at Rs 260 per share.

The price represents a premium of 12 per cent to the current market price .

McDowell is making the open offer following its acquisition of the 54.5-per cent promoter stake in Shaw Wallace.

As part of this deal, the promoter group will receive a consideration of Rs 325 per share, which represents a 25 per cent premium compared to the offer for other shareholders.

The premium is for a five-year worldwide non-compete agreement signed by the promoter group of Shaw Wallace. The deal also entails the complete acquisition of a couple of other units associated with Shaw Wallace and also in the business of spirits distribution.

The current offer is to acquire up to a maximum of a further 25 per cent in Shaw Wallace; the number of shares accepted through the offer will be such that at least 25 per cent of the equity continues to be held by the public.

The sharp run-up in the Shaw Wallace's price over the past six months can be attributable more to the buzz seen across stocks in the alcoholic beverages business rather than any sharp improvement in fundamentals.

The acquisition of Shaw Wallace gives McDowell enormous muscle in the domestic spirits business, with key brands such as Antiquity, Royal Challenge and Director's Special now coming under its fold. However, Shaw Wallace's beer business, for which it has a 50:50 joint venture with SABMiller, does not form part of the current deal.

The current deal is yet another vindication of the theme of consolidation that is being witnessed in the spirits business worldwide (the latest deal between Pernod Ricard and Allied Domecq is an example).

Once the acquisition of Shaw Wallace is put through, the UB Group will have the size to be a player to reckon with in the global sweepstakes, given its dominant footprint in a market that holds significant growth potential.

The UB Group intends to bring under the banner of United Spirits the businesses of McDowell, Triumph Distillers, Herbertsons and Shaw Wallace.

When the restructuring exercise is completed, it is also possible that the swap ratio might not be favourable to Shaw Wallace shareholders given its financials.

Hence, participating in the open offer appears to be an appropriate course of action. The offer, which is managed by ICICI Securities, opened on April 18 and closes on May 7.

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