Diageo-USL deal to boost premium liquor brand market: CCI

After seeking clarifications and changes four times in a proposed acquisition of majority stake by UK-based Diageo in UB group's United Spirits Ltd, fair trade regulator CCI has ruled that the deal would give a boost to entry of premium brands in alcoholic beverage market.

"Diageo's acquisition of USL may give a boost to the premiumisation strategy...The combination may increase and improve consumer choice,"  Competition Commission of India (CCI) has said.

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CCI, in an order dated February 26, has approved Diageo Plc's proposed majority stake purchase in Vijay Mallya-led United Spirits, saying the deal would not have adverse impact on competition.

Sebi, last month, cleared by the deal after numerous clarifications sought by the regulator and the subsequent representations made to it in this regard.

The proposed transaction worth about USD 2 billion would provide much needed cash for Mallya's UB group, whose aviation venture Kingfisher Airlines is facing turbulent times.

Under the deal, Diageo would acquire up to 53.4 per cent stake in United Spirits, one of the largest spirits firm, within five years. Approving the deal, CCI said the proposed combination is not likely to have an appreciable adverse effect on competition in India.

The Commission noted that United Spirits and Diageo are mostly present in different price spectrums in the branded spirits market with negligible overlap between their products in each of the branded spirits segment.

"The proposed combination may bring new products and more variants of the existing brands at different price points which would ultimately enable the consumer to expand his choice set," it said.

Relay B V, an indirect wholly-owned subsidiary of Diageo Plc, and United Spirits had submitted a notice to the fair trade regulator seeking nod for proposed acquisition of shares and control of United Spirits. The notice was given on December 5, 2012, and later, the Commission had sought
clarifications from both parties quite a few times.

According to the companies, the proposed combination would help Diageo to effectively participate in India's large and rapidly growing spirits market.

"It has also been stated in the notice that the proposed combination provides an opportunity to Diageo to premiumise the existing brands and innovate from United Spirit's trademarks, which would also result in a huge change in
Diageo's emerging market global footprint," the order said.

As part of the deal, Diageo would acquire 27.4 per cent stake for Rs 5,725.4 crore through a combination of share purchase from existing promoters and preferential allotment of shares.

In addition, it had offered to acquire an additional 26 per cent stake for Rs 5,441.07 crore through an open offer for public shareholders.

According to the Commission, it can be seen that post combination, the market share of the combined entity would not change much except in the vodka market.

On January 31, capital market regulator Sebi had cleared an open offer by Diageo for purchase of 26 per cent stake in USL, which is part of the USD 2 billion deal.

UK-based Diageo is primarily engaged in the manufacturing and distribution of spirits, beer and wine in around 180 countries. Its well known brands include Johnnie Walker, Smirnoff and Ciroc.

In India, Diageo is present through its wholly-owned subsidiary Diageo India Pvt Ltd.