Trouble brewing at United Breweries
According to reports in the Indian media, Heineken may pay a multi-year USD 100 million “commercial fee” to UB for handling distribution and bottling of its beer brands in India.
The possibility of a payout may signal a thaw in the relationship between Heineken and UB. UB had moved the Bombay High Court to prevent Heineken from accessing any rights that were conferred to S&N, and also objected to Heineken’s group arm Asia Pacific Breweries (APB) running parallel operations in the country.
Now, a comprehensive business partnership is in the works which shall formalise Heineken’s entry into UB. The commercial fee, which is nothing but a cash transaction that allows Heineken to buy its way into management, was initially believed to be higher but seems to have been reduced to USD 100 million.
The relationship between United Breweries and Heineken has been troubled right from the start. In March 2008 Mr Mallya, a multi-billion businessman, announced that he might buy out Heineken’s inhered stake in his company.
Heineken has since weighed several options, including an assessment of its own legal rights. Let’s face it, Heineken is not without leverage in this case. Heineken has another presence in India through APB, which runs two breweries in India. APB’s market share may still be small compared to United Breweries’, but at about the same time as Mr Mallya flexed his muscles, APB announced that in three years’ time it hoped to be the number three player in India. Moreover it would be brewing Tiger and Heineken for the Indian market locally.
Perhaps APB’s threat – plus two quarters in which profits dipped – have mellowed the roughshod Mr Mallya and made him more disposed towards a peace offering by Heineken. In the quarter to June 2008 net profit of United Breweries fell to 88.60 million rupees from 294.60 million rupees, while in the quarter to September 2008 net profit declined 51 percent to 51.6 million rupees year-on-year.
On 6 January 2009 United Breweries’ shares were trading down 89.18 percent from their 52-week high of 1,220 rupees.
