Staff at near-bankrupt Kingfisher Airlines have something to smile about, finally, as the UK's Diageo pulled the trigger to buy a 53 percent stake in Vijay Mallya's flagship United Spirits unit on Friday, providing the flambuoyant tycoon a much-needed $2 billion with which he'll seek to keep his airline from crashing. (And, hopefully, issue some salary checks).
As GlobalPost reported last month, Mallya -- known for apeing Richard Branson, gold chains and shirts unbuttoned to his navel -- has been pilloried as "India's worst businessman" since the high profile failure of his airline. His employees have taken him to court to try to squeeze some cash out of him. And there was a pretty decent chance that shareholders might have made an attempt to force him to cede control of the family business built by his father in the heyday of the Bangalore booze boom.
Mallya, who said Friday that he has not sold the family jewels, though there is every appearance he has put them in hock, now looks to have averted the worst.
Diageo will acquire a 27.4 percent stake in United Spirits at 1440 rupees ($26.32) a share, or 660 million pounds ($1.05 billion), and make a tender offer for another 26 percent, the Associated Press reported.
The deal will make accessing India's booming whiskey market easier for the company that owns Johnnie Walker, Smirnoff and Guinness. Currently, India imposes a stiff import duty (100 percent if I'm not mistaken), so foreign firms that want to compete must set up onshore bottling operations--as have outfits ranging from Anheuser Busch to the Carlsberg Group.
Presumably, therefore, Mallya's existing bottling factories and distribution network will be a huge boon for Diageo. But the real question is whether this is the first move in an eventual takeover of Mallya's highly leveraged liquor business altogether.
United Spirits is India's largest seller of hard liquor--controlling 22 "millionaire brands" including popular "Indian made foreign liquor" brands such as McDowell's and Royal Challenge as well as premium Scotches like Black Dog and Whyte & Mackay. The unit sold 122.75 million cases of hooch in the fiscal year ended March 31, 2012 accounting for revenue of 92 billion rupees (or $1.7 billion).
That's considerably more than the 37 billion rupees ($700 million) brought in by Mallya's United Breweries, but losing that part of the empire would mean giving up the Kingfisher beer brand that provided the tycoon's "King of Good Times" monicker.