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One of the spirits industry's longer-running sagas gained an extra chapter this week when Diageo announced that it is willing to sell off a large chunk of Whyte & Mackay (W&M).


Diageo effectively took over W&M when it secured majority control of its parent company, India's United Spirits, in July. But, in an addendum to that drawn-out transaction, Diageo is now looking at offloading parts of W&M over regulator concerns that the acquisition of the Glasgow-based Scotch producer could lessen competition in the Scotch whisky market in the UK.

On Monday, the UK's Office of Fair Trading said that it is considering Diageo's offer to sell W&M's central operations, as well as its Invergordon, Jura and Fettercairn distilleries. Diageo hopes to keep hold of W&M's Dalmore and Tamnavulin distilleries, but its offer of tribute did stay the OFT's hand on a referral to the Competition Commission.

Analysts immediately hailed it as a smart move. Garry White, chief investment commentator at stockbroker Charles Stanley, told the BBC: “Should the regulator accept the offer ... the price doesn't seem too high to gain a significant position in India - the world's fastest-growing whisky market." 

Indian observers, meanwhile, were concerned about the effect a sale would have on United Spirits. Many reported Morgan Stanley's view that it could almost clear the company's debts if W&M were to be sold for around US$595m.

The next question, of course, is who will step in to buy W&M if the OFT determines it should be sold. In the Scotsman, business writer Peter Ranscombe suggested that Chinese, Indian and Russian investors would be amonth the bidders, while venture capitalists could be swayed by the ongoing boom in Scotch exports

One analyst told the UK's Independent newspaper it is unlikely to be bought by Pernod Ricard or one of the other big Scotch makers. “It will probably go to a private equity buyer,” the analyst said.

That view gained further traction today, when Vivian Imerman, a former W&M CEO, announced his interest in the company. Imerman's private-equity firm, Vasari, said in a statement: “Whyte & Mackay would make an important addition to the portfolio of spirits and beer businesses in Africa and Asia where Mr Imerman has been concentrating his efforts.”

In fact, Imerman's interest, as W&M's ex-head, also underlines the distiller's turbulent past as one that has been tossed from one owner to another. In a just-drinks editorial this week, Olly Wehring outlined W&M's “colourful history” since it became part of the Scottish & Universal Investments group in 1971, including a stint under Beam Inc forebear Fortune Brands and a full buyout in 2005 by Imerman and investment partner Robert Tchenguiz.

Finally, there is the question of whether Diageo has an issue with regulators attempting to slice up part of its United Spirits prize, one that it fought long and hard for. just-drinks deputy editor James Wilmore suspects not.

“The play for the Vijay Mallya-controlled group has always been about getting a solid foothold in India's vast and expanding local spirits market," said Wilmore. "So, the fact that Diageo appears to have rolled over relatively easily in offering to sell most of Whyte & Mackay is no surprise.”

Diageo won't want to bother with a potentially long and costly fight to keep what was always a secondary concern in the Mallya empire. When the dust has finally settled, this could be one part of the Diageo/United Spirits story that was mercifully brief.

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