Olly Wehring

Diageo ends United Spirits intrigue

By: Olly Wehring - 25 August 2009 16:13

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Diageo has put an end to speculation that it may invest in United Spirits (USL), at least for now.

It has been apparent to just-drinks, as I'm sure it will have been to several others following the situation, that talks between the two companies were not going swimmingly.

There have been suggestions from the Diageo camp that Mallya and co were not that easy to deal with. Sources diplomatically described the progress of talks as "slow" earlier this year, although both Diageo and USL maintained that the dialogue was still open.

Now, the game is up. The main barriers - the size of Diageo's stake and the amount of investment  required by USL - have proven insurmountable.

Well, they have for now. On the face of it, some kind of tie-up still looks like a decent bet for the future.

India is one the world's largest countries, with a strongly emerging economy and a growing thirst for spirits. USL controls around two thirds of the market and, as part of Vijay Mallya's UB Group, has the biggest distribution network in the country's drinks sector.

Diageo, as the world's largest spirits firm, naturally wants a piece of that market. Its current joint-venture in India with Radico Khaitan has a spirits market share of around 10% - hardly enough for the world's leading spirits player.

However, exciting as India may be as a market prospect, it is early days. There is plenty of time for round two. 

United Spirits, meanwhile, has its short-term sights fixed on securing private equity investment.

CM.

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