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Kingfisher under threat

May 15, 2008

After a series of defeats on the field in the ongoing Indian Premier League, ‘Royal Challenger’ Vijay Mallya cannot take any defeats off field. He can see clear signs of threat from Dutch giant Heineken, which has snapped up Scottish & Newcastle (S&N), Britain’s biggest brewer, along with Carlsberg, for $15.4 billion (Rs 61,600 crore). S&N holds a 37.5 per cent stake in United Breweries Limited (UBL), which is as much as Mallya holds; this gives S&N certain special privileges like equal representation on the UB Board, appointing a CFO and access to all financial information. Will Heineken, which owns S&N’s Indian assets under the deal, inherit all these?

UBís Vijay Mallya: Guarding his turf from the Dutch giant
Vijay Mallya
Mallya may not detest supping with Heineken; but that won’t be so simple as the Dutch brewer is a large stakeholder in the Singaporebased Asia Pacific Breweries (APB), which directly competes with Kingfisher beer on Indian soil with brands like Tiger and Baron. Allowing Heineken to walk away with the same privileges as S&N in its previous avatar is a surefire recipe for disaster. Or so Mallya believes.

He is firm that S&N’s charter of rights does not automatically extend to its new acquirer. He is now out to prove that point. Mallya has moved Mumbai High Court, seeking termination of privileges that S&N enjoyed earlier.

UB Group insiders don’t see it necessarily as a legal fight, but just an arm-twisting tactic by the UB Group Chairman to get Heineken around to the negotiating table. He could then work out fresh and favourable terms so that Kingfisher, which controls half of the Indian beer market, can continue to fly high uninhibited.

Mallya will get big relief if Heineken accommodates his concerns and agrees to the business structure he proposes. One of which, UB officials say, is to bring APB’s brands under the UB fold and sell them all under Kingfisher’s vast distribution network. What if the Dutch brewer rebuffs the proposal? Then, according to UB sources, Mallya may negotiate a buyback of S&N’s stake; if that does not happen, he may buy a stake in ABP and prevent his new partner from getting an edge over him in the Indian beer market.

Analysts, meanwhile, are not in a position to comment this way or that. “We are watching how things finally end. Imagine a situation when your competitor becomes your shareholder. UB is in that situation,” says R. Sreeshankar, Head of Research, IL&FS Investsmart.

K.R. Balasubramanyam


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