Diageo-USL deal: Win-win for both?

From the acquisition of McDowell's by Vittal Mallya in 1951, United Spirits has come a long way in 60 years. The company that had become the world's largest spirits company by volume by 2011 under Vijay Mallya has now sold out its controlling stake to Diageo last Friday. In fact, acquisitions have been the signature of this company.

For instance, Vijay Mallya fought a long battle for Shaw Wallace & Company (SWC) since 1985. He wrested control of the spirits division of SWC in 2005 for about Rs 1,300 crore. And then the world's second largest liquor company went ahead to acquire Glasgow-based Whyte & Mackay in 2007 which had 10 per cent share of the world's scotch whisky market.

The significant aspect of the Diageo-USL deal is the behaviour of the scrip this year. From a low of Rs 450 that it had touched in January this year the shares have risen by 216 per cent by November 9. While the shares have since come lower at Rs 1,359.70, the price of the deal has been set at Rs 1,440 a share, showing the faith the deal managers have in the upside of the Mallya company. USL has a phenomenal 46 per cent holding by FIIs but domestic institutions seem to have lost out as they had cut back their exposure to the company from over 7 per cent to less than 5 per cent while the prices soared.

But, would the deal mean Vijay Mallya losing the control of his cash cow to save the sinking Kingfisher Airlines? His United Breweries Holding Limited will hold only 14.9 per cent in USL post the deal, though Mallya will still retain the chairman's position. Mallya knows the liquor business better than most including how to build a brand. He obviously reckons that he can still bounce back into a winning position in this business later. Meanwhile the cash helps him to resurrect his airline. Preserving the brand name is important in his business model, whether its aviation or liquor.

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