Vijay Mallya : Diageo may have to part with Whyte & Mackay (W&M)

Diageo, the world’s largest liquor company, may have to part with the 169-year-old scotch company Whyte & Mackay (W&M).

W&M is part of United Spirits (USL) in which Diageo acquired a controlling 25.2% stake earlier this year from Vijay Mallya (pictured). Then Mallya-led USL had acquired W&M in 2007 for $1.2 billion.

The Office of Fair Trade (OFT), the UK’s competition watchdog, believes that Diageo and W&M’s tie-up will make the entire market anti-competitive as the two companies together could dominate the blended whisky market in the UK, probably resulting in prices rising.

“Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers. We are now considering Diageo’s offer to sell the bulk of the Whyte & Mackay business with the exception of two malt distilleries, to address our concerns,” said Chris Walters, chief economist of the OFT.

He added that the two companies are the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers.

Diageo has offered to sell its entire W&M business, apart from Dalmore and Tamnavulin malt distilleries, in order to address competition concerns relating to bottled blended Scotch whisky.

Diageo owns whisky brands such as Bell’s and Johnnie Walker while W&M has its own iconic eponymous label and some other private label brands

In an analyst conference last week, Diageo told Nitin Mathur of Espirito Santo Securities that it does not have any buyers lined up yet. Diageo, Mathur was told, will start scouting for buyers only after it gets a nod from the OFT to sell W&M.

Some analysts believe that the valuation of W&M now may be lower than $1.2 billion that USL paid for it in 2007. This is because margins and Ebitda or operating profit of W&M have been under pressure. Moreover, since the sale will be made mandatory for Diageo, even that would put pressure on W&M’s valuations, said experts.