UB-Heineken alliance: An analysis

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UB-Heineken alliance: An analysis

Vijay Mallya led United Breweries has reached an agreement with Europe's largest brewery Heineken, to cement an alliance reports CNBC-TV18’s Raja Rajeshwari.

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Vijay Mallya led United Breweries has reached an agreement with Europe's largest brewery Heineken, to cement an alliance reports CNBC-TV18's Raja Rajeshwari.

Here is a verbatim transcript of Raja Rajeshwari's comments on CNBC-TV18. Also see the accompanying video.
 
This is just settlement of a shareholding pattern, which has got into mix over the last two years. If you remember, Scottish and Newcastle had a 37.5% stake in UB and when Scottish and Newcastle got sold to Carlsberg and Heineken consortium one-and-a-half years ago, Heineken had taken over the Indian operations as part of the consortium settlement.

Heineken had got UK, Ireland, Portugal, Finland, Belgium, US and India. This 37.5% stake also went to Heineken at that point in time. From that time Mallya has been in talks with Heineken to either get them to sell back the 37.5% stake or if they wanted to be in India then everything should be consolidated under one umbrella.

This has been a talk from as early as January 2008 itself and finally it has concluded right now. By virtue of having this 37.5% stake what Heineken will now get is they get to ride on top of the UB's marketing and distribution arm, over and above that they get some governance kind of roles, which will be the CFO of UB will be fixed by or will come from the Heineken's stable. So they have given the name of one employee who will be joining as a CFO, two people are going to be nominated as board of directors also which means there will be two board seats by which they will be able to see what UB is being run.

So all put together now Mallya is saying that as majority shareholders Heineken will have 37.5% stake all put together we are going to have 75% stake, which is Heineken and UB put together.

What happens right now is since all operations are coming under one umbrella, the existing operations in India, which is APB's existing investments -- Asia Pacific Breweries, Aurangabad Plant and Pearl Plant -- will now come under UB. This is expected to get completed by Q1 of 2010. This is a Heineken press release which has come out.

What it doesn't mention is what is Vijay Mallya going to pay in return or is it going to be that because they are using the Indian distribution arm then maybe Heineken is paying some fees to Vijay Mallya and they are using it, what is the outflow from UB is not clearly given in this, how are they going to roll it forward is also not clearly mentioned in this. There is a conference call at 4.30 pm so more clarity will come only then.

On UB's debt concerns

There are three assets. We spoke about the two plants which will be coming in, the first brewery has about 3 lakh cases which can be made in a year and APB-Pearl has approximately 1, 00,000 cases, which can be made in a year but the press release itself is very sketchy in terms of what kind of debt this comes in with. If you notice a press release which has come in from Heineken, there are two deals which have been done, one is the Indian operations which are going to get transferred to UB, the other being they are also consolidating their position in Asia itself and Heineken as a statement says that overall the consolidated debt is going to get reduced. So the break up of how much from the India operations or how much from the Asia operations is not given.

So more clarity will come on the conference call whether the plants, which are coming onboard, have any kind of debt itself, what kind of revenue stream they have from the existing capacity that they have, what kind of capacity that they are working on. As I said we don't know what is going to be the outflow from the UB brand itself. As things stand right now, there may not be an outflow but the financial terms of this deal will clearly give us on how much the debt is going to increase by.