UB Group and Diageo in exclusive talks
Why should Diageo engage with Cobra Beer if it can get into partnership with a mightier player? India’s UB Group said that its subsidiary United Spirits and Diageo have entered into exclusive talks for a limited period. Apparently, Diageo hopes to gain better access to the subcontinent’s growing middle class with its whisky brands.
"We have begun an exploratory dialogue with Diageo to identify partnership opportunities and areas of synergy," a UB Group spokesman said in a statement.
The company did not provide further details.
However, Diageo, which makes Smirnoff and Guinness, confirmed it is in discussions with Vijay Mallya, the Indian billionaire owner of Kingfisher beer, about a partnership deal which the British firm hopes will help it better access the subcontinent with its whisky brands. A few months ago discussions between Diageo and Cobra Beer had gotten nowhere.
According to British media, a deal is likely to involve the London-listed firm taking a stake in Mr Mallya’s United Spirits. Reports in the Indian media suggest Diageo could acquire close to 15 percent of the company.
The talks will put a strain on Diageo’s relationship with its Indian joint venture partner Radico Khaitan. But Diageo has always made it clear that it regards India as a priority, identifying a huge demand for its Scotch brand Johnnie Walker among India’s middle class consumers.
Mr Mallya’s UB Group dominates the Indian beer market with a 43 percent share. It is also a leading producer of spirits and has seen the potential for importing Scottish whisky into India. In 2007, the UB Group paid GBP 595 million (EUR 720 million) to acquire whisky maker Whyte & Mackay from the South African entrepreneur Vivian Imerman and his brother-in-law Robert Tchenguiz, the UK-based property tycoon. At the time, Mr Mallya said: "Until today, the only missing link in our portfolio has been Scotch and due to the shortages and rapidly increasing prices of scotch, we needed a reliable supply source to secure our future."
Whatever the outcome of the talks, a cooperation between Diageo and the UB Group will improve Diageo’s distribution but will not solve the fundamental problems resulting from India’s high import tariffs for spirits.
