Pot of Gould – Mallya’s Scottish prize
The recent takeover of Whyte & Mackay by the Indian UB Group is hardly the first time the Glasgow-based Scotch whisky producer has changed hands over the past 20 years or so. Patience Gould, who has seen all the various owners come and go, runs an eye over the latest deal and assesses what it has to offer both Whyte & Mackay and the Scotch whisky sector as a whole.
At last! The UB Group has bagged Whyte & Mackay, the Glasgow-based Scotch whisky company, for almost GBP600m (US$1.18bn), bringing to a close six months of 'on-off' speculation.
The price does seem a tad on the high side - though it's difficult to say without knowing Whyte & Mackay's stock inventory. It's thought to stand at horrific or terrific levels - depending on which way you look at it, and that's good news for UB and its Indian whisky brands.
But while the thrill of the chase has ended, it's now that the fun begins - and while all parties, including the Scotch Whisky Association (SWA) are reportedly delighted - it does throw up some interesting issues, not least whether Whyte & Mackay will remain an SWA member. The two have long been in dispute - as the SWA is opposed to Indian whiskies in Europe as they are produced from molasses rather than cereals.
UB chief Dr Vijay Mallya, on announcing the acquisition, outlined the key reasons for his purchase - and the major one was the constant supply of Scotch it would afford. Plans are already in the pipeline to double production at W&M's Invergordon Distillery to 80m litres, involving an investment of some GBP10m.
The second reason cited by Dr Mallya was that he had acquired a "strong portfolio of international brands".
This is decidedly a moot point, for over its turbulent ownership history during the last 20 years, Whyte and Mackay has never had the chance to get consistently behind its brands.
The ups and downs of Whyte & Mackay started back in the late 1980s when the then owner Lonrho sold the company to Brent Walker (1988); two years on it was acquired by American Brands - now Fortune Brands - following a failed management buyout along the way. In 2001, it was sold to Kyndal in a GBP200m management buyout backed by German investment bank WestLB. Four years on, Vivien Imerman acquired the company and it reverted to Whyte & Mackay.
When set against the Fortune Brands tenure, the Imerman years have been decidedly productive; Whyte & Mackay was relaunched, repackaged to underline its Glaswegian heritage, and the range reworked to comprise 13-, 19- and 22-year-old aged blends - but still the brands remain essentially Scottish, and not international. This would seem to rule out the possibility of any global ambitions UB might entertain for Whyte & Mackay, and in any case on that front the Indian group cannot bring much to the party. It may look at furthering development in Latin America or even Europe, but as one industry pundit commented: "Why bother when you've got India?"
Indeed. India is after all one of the world's largest whisky markets and UB is easily the dominant player. Currently Scotch is at the pinnacle of the whisky mountain accounting for less than 1% of the action. It could of course be much, much more if Scotch was playing on a level playing-field - but tariffs are extortionate, at around 550%. However, that notwithstanding there is a small though significant minority of consumers for whom price does not matter - a fact borne out by Johnnie Walker's on-going success. Diageo's business in India is rumoured to be in the region of 400,000 cases a year.
Clearly the potential is enormous but, as another source warned, "United Spirits is going to have to spin quite hard to get Whyte & Mackay seen as an international trophy international". A key reason, perhaps, why Dr Mallya was so quick to emphasise the international aspect of his latest acquisition. It does seem likely, though, that India will be the main stamping and development ground while a solid foothold will be maintained in Scotland.
The timeframe for tax reform in India is thought to be within the next two years - but no doubt Dr Mallya will be anxious to short-circuit this, and will be bringing his huge political and governmental clout to bear. This, of course, would be good news for the Scotch whisky industry as a whole, but a Chinese whisper currently doing the rounds is not good news. It suggests that the first stage in the reduction of tariffs will only apply to those Scotch whisky brands in Indian hands - and as we know there is currently only one!
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