UB, Heineken deal:Mallya to pay 7% royalty to Heineken

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UB, Heineken deal:Mallya to pay 7% royalty to Heineken

Vijay Mallya Chairman, UB Group says all potential issues of conflict have been resolved. "The royalty to Heineken will be 6-7% of the sales value."

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » RELATED NEWS UB-Heineken alliance: An analysis Heineken, United Breweries cement deal for India plans UB Holdings BSE | NSE 31/05/12 Are Mutual Funds betting on UB Holdings?

The action in the Indian beer market, which is expected to grow to 14.4 million hectolitres by the end of the current fiscal is hotting up. The UB Group, which has a 48% stake in this market, has now taken a concrete step towards consolidating its position.

UB and Heineken have decided to bury the hatchet. The Dutch beer maker announced that it will acquire Singapore-based UB Group Asia Pacific Breweries' India operations. This will then get transferred back into United Breweries Holdings limited in 2010. This deal will give both Heineken and UB manufacturing and distribution synergies.

Vijay Mallya, Chairman, UB Group says all potential issues of conflict have been resolved. "The royalty to Heineken will be 6-7% of the sales value."

Here is a verbatim transcript of the exclusive interview with Vijay Mallya on CNBC-TV18. Also watch the accompanying video.

Q: What finally seems to have really swung the deal this time around?

A: The conflict with Heineken was basically their dual interest in India - one with Asia-Pacific Breweries (APB) and one with United Breweries. That was now resolved and Heineken now have brought the APB assets in India and these will be integrated at some point of time with UB. So that is one conflicting position out of the way. We both have committed ourselves to developing each others brands. For Heineken it means that UB will launch Heineken as a super premium international product offering through our very strong distribution system in the Indian market. Similarly Kingfisher would be both brewed and distributed by Heineken in several world markets where opportunities present themselves. It's win-win for both.

We have spent a lot of time resolving each and every potential contentious issue that we could think of. We have established a very good relationship of this rather long negotiation and now both of us are very much looking forward to a well-defined and very close partnership. It's taken its time but it's the best way forward not only for the business but for the shareholders as well.

Q: When there were speculations of this deal going through, there were reports coming in of about Rs 200-300 crore in terms of one-time fee. Have you decided to not to pay the fee and if you have then what has really swung this side of the story?

A: It was never intended that we would pay Heineken any fees. There is mutual respect for what Heineken brings to the Kingfisher brand and what UB brings to Heineken brand. So there is not a question of any sort of upfront exchange of fees. We will pay a sort of negotiated royalty on Heineken brand for brewing and sales in India. But these are the nitty-gritty's that will be worked out in over a period of time.

Q: You said you will be negotiating royalty to Heineken. Can you give us a ballpark figure of what this amount is likely to be?

A: It will be 6-7% of sales value.