While everyone's scrapping over Vijay Mallya, Heineken moves in on United Breweries

Once the prominent face of a rapidly growing India’s liquor business, Vijay Mallya now is struggling to come out clean after having failed to repay bank loans of over Rs 9,000 crore and making an unceremonious exit from the country early this month, leaving tax agencies, banks and judiciary red faced. While efforts are being made to bring back Mallya to face the country’s law, trouble is mounting at his spirts’ business. Along with his grounded airlines business, the business tycoon has already sold a part of his liquor business to Diageo and is on the verge of losing control of its beer-making company United Breweries (UB).  According to a report in The Economic Times, Dutch beer giant Heineken has appointed investment banking firm JM Financial to help it raise its stake in UB. The Dutch brewer is already the largest shareholder in United Breweries, maker of Kingfisher beer, with a 42.38 percent stake, and is keen to increase its holding beyond 50 percent, either by buying directly from liquor baron Vijay Mallya or his creditors, the report said. As on December 2015, Vijay Mallya’s stakeholding in United Breweries stood at 32.29 percent while that of Heineken accounted for 42.38 percent. In a block deal held last year, Diageo-controlled United Spirits Ltd (USL) exited from United Breweries Ltd by selling its entire 85 lakh equity shares or 3.21 percent stake in the company for Rs 872 crore. As per the BSE data, Scottish & Newcastle had 34.04 percent stake in UB as of March 2015, while Heineken UK and Heineken International had 3.21 percent and 1.6 percent, taking the group’s total shareholding to 38.85 percent. Following the 3.21 percent stake buy from United Spirits, Heineken’s total shareholding in UB increased above 42 percent. Before the entry of Heineken into United Breweries, UK’s Scottish & Newcastle India Ltd (SNIL) first held 37.50 percent stake in the Indian beer company in 2005 after SNIL was first allotted over 37.79 lakh shares on preferential basis on April 7, 2005. Further, the open offer resulted in over 43.20 lakh shares being tendered taking the aggregate holding of SNIL in UB to 37.50 percent stake in June 2005. In 2008, Heineken had indirectly acquired 37.5 percent stake in United Breweries following its worldwide takeover of Scottish & Newcastle. In fact, Vijay Mallya’s stake in United Breweries began to slide since June 2013, when his holding slipped from 40.46% in March same year. As a result, Vijay Mallya’s holding fell to 37.25 percent and Heineken’s ownership edged past the former’s control to 37.57 percent. In December 2013, Mallya’s stake eased further to 35.91 percent while Heineken’s holding improved to 38.92 percent. After the holding remained steady the following year, in September 2015 Heineken further consolidated its position to 42.23 percent where as Mallya’s ownership slipped to 32.45 percent. Of the 32.29 percent stake held by Vijay Mallya and his associate companies in United Breweries as of December 2015, Mallya has 8.08 percent stake held in his personal capacity, of which 98.11 percent shares are already pledged with creditors. According to ET report, UB’s current market cap is Rs 20,899 crore. The market value of the pledged shares is Rs 3,217 crore at Monday’s closing price of Rs 790.45 apiece. The report further states that Heineken may also be feeling pressure of another kind. While it has no significant quarrel or dispute with Mallya, the Dutch giant feels duty-bound to protect its most precious investment in the country from raiders and opportunists willing to fish in troubled waters. The last thing Heineken needs is for a rival to jump in and buy the pledged shares and that could explain the reason behind the JM appointment and the need to increase its stake. Hence, if Heineken has its way, it can still go ahead and buy the pledge shares of UB from the creditors and boost its ownership to over 50 percent and emerge as the largest shareholder of the beer company. For Vijay Mallya, the battle for ownership of his beer business is already lost, and with this will probably mark the end of his once flourishing career in the spirits business.