Radico, Diageo brew new ‘Asian’ cocktail

NEW DELHI/ BANGALORE: The Lalit Khaitan-managed Radico Khaitan (RKL) is set to float an equal joint venture with the world’s largest drinks company, Diageo, for a block of Asian markets, including India, informed sources have said. RKL, the country’s second largest spirits company, through its overseas subsidiary Radico Global, is in advanced talks with Diageo to tap opportunities in the Asian markets. The move could significantly bolster RKL’s profile in the global spirits market.

The deal will also help Diageo to enhance its market presence in India, arguably the fastest growing spirits market in the world. This will mark Diageo’s first major move in India, and in this part of the world, after selling its Indian Made Foreign Liquor (IMFL) assets in ’02.

The JV will unveil a portfolio including certain Diageo brands earmarked for growth in this region and new brands to be jointly developed by the partners. “We do not comment on speculation in the media,” said a Diageo spokesperson, when contacted.

“Radico Khaitan is constantly looking out for suitable acquisitions and JV targets, both in the domestic and international markets in the liquor industry. To this end it has mandated Rabo India Securities as its strategic advisor to identify such opportunities and will be seriously considering all such options recommended.

However, no plans have been finalised yet. Further, Radico Khaitan is in the process of raising US$ 100m through the issuance of FCCBs/GDR/ADR,” said a Radico spokesperson.

The company’s EGM had approved the proposal to raise funds and the company had informed BSE accordingly. The company is looking forward to utilise the funds to grow further through acquisitions, capex and debt reduction,” said a Radico spokesperson.

The exact contours of the deal, including the structuring, are not yet clear. But industry observers are already betting on the deal’s significance to change the market dynamics for both players involved in this region. Sources indicated that both Radico and a Diageo subsidiary will jointly capitalise the new venture.

Sources said Diageo was loooking to push brands like Smirnoff Red, the second-line scotch whiskies such as VAT 69 and Black & White, apart from bolstering its rum and brandy portfolio, through the JV. It must be mentioned that Diageo has been considering options to enhance its profile in the Indian sub-continent and had initiated informal talks with various players.

For Radico, the deal-making with Diageo is based on the premise that it needs to ramp up business in the overseas markets rapidly, and ally with a global giant, which would provide a bulwark against the Vijay Mallya-controlled United Spirits domination of the Indian market. Radico is a distant second with 12.5m cases (of 9 litre each) compared to USL’s 60m cases (in an overall market estimated at 130/134m cases) after the latter acquired Shaw Wallace & Co last year.