UK SPV on the cards to finance deal

MUMBAI: The Vijay Mallya-promoted UB Group will float a special purpose vehicle called United Spirits Great Britain to buy Whyte & Mackay (W&M) in a transaction worth about $1.2 billion. The acquisition will be a mix of leveraged or non-recourse financing and borrowings by United Spirits. “We will be selling our treasury stocks to part finance the acquisition which will help us to reduce the debt,” UB Group chairman Vijay Mallya said.

He added that given the very valuable Scotch whisky inventories and production assets, a significant part of the acquisition debt is in the target with no recourse to United Spirits. Further, the combined profits of United Sprits and S&M are expected to be earning accretive from the first completed year of operations after accounting for the cost of funds applied to the acquisition. Bankers close to the deal said that Whyte & Mackay’s bulk Scotch inventories of 115 million litres are alone valued at around £350 million. They may be higher than the other assets of the UK company.

“While on a near term basis, the valuations do not seem cheap, it reflects a scarcity premium on Scotch assets. There are not too many available acquisition options, especially in the context of the large size of W&M’s Scotch inventory,” bankers said.

The annual operating income of W&M is now approximately £50 million and it expect to grow at the rate of over 20% per annum.The company said finance for the acquisition was arranged and provided by ICICI Bank and Citibank and they were advised by UBS, ICICI Bank and Standard Chartered. Citigroup was the adviser of W&M in the deal.

ICICI Bank has given £325 million with a two year moratorium to the UB Group to finance the deal while Citigroup has given £310 million with a 30-months moratorium to the group. While ICICI Bank has given the debt to the SPV floated in the UK, the Citigroup has provided the debt assistance to United Spirit India.


UB group’s president and chief financial officer Ravi Nedungadi said that W&M has a pension fund liability of around £18 million and the deal also address the pension fund issues.
The UK-based Scottish whisky maker had recorded a sales of nine million cases in the last 12 months and sales of 66 million cases for the year ended March 31. It has four different malt whisky distilleries in Scotland with another state-of-art bottling facility in Grangemouth.

Industry analysts feel that United Spirits will also be able to enhance the profitability profile of W&M by driving a shift in product mix favourable towards branded bottled whisky by driving sales in India and China. Indian is emerging as a Scotch destination as rising incomes and preference for high end brands are driving 30% growth in Scotch whisky demand in India, against overall liquor market growth of 12%.