According to media reports, British distiller
) has received the final nod for its entry into India. The joint
venture between Diageo and Vijay Mallya's United Spirits got a
clean bill of health from the fair trade watchdog Competition
Commission of India ('CCI').
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The commission is of the opinion that the tie between the two
spirits companies will not affect the competitive environment in
the country. The commission also noted that United Spirits and
Diageo operate in different price segments and the cost overlap
of their products within these segments is minimal.
The tie-up is also expected to boost product innovation and thus
bring new variants within the existing price bands giving wine
lovers in India more choice.
The agreement between Diageo and India's largest spirits company
United Spirits Ltd. entered into an agreement, according to which
Diageo will acquire a 53.4% stake in the latter for 1.285 billion
pounds ($2.05 billion), in order to venture into the fast-growing
alcohol market in India.
Under the agreement, Diageo will buy a 27.4% stake in United
Spirits for INR 1,440 per share ($26.32 per share), amounting to
a total consideration of 660 million pounds ($1.05 billion), and
make a tender offer for the remaining 26%. Diageo will finance
the acquisition through existing cash and debt. The deal is
expected to close in the first quarter of 2013.
United Spirits is owned by Indian entrepreneur Dr. Vijay Mallya,
who needs cash to bail his Kingfisher Airlines out of bankruptcy.
Besides financial strength, the acquisition will provide United
Spirits with bright opportunities ahead. Following the
acquisition, Dr. Mallya will continue in his current capacity as
Chairman of United Spirits.
After the fair trade regulator received a notice regarding the
tie up in Dec 2012, it obtained many clarifications from both the
parties and finally gave its approval for the spirits giant's
entry into India.
London-based Diageo, whose brands include Johnnie Walker,
Smirnoff and Guinness, has been exploring opportunities to expand
geographically through acquisitions. In furtherance of this
strategy, it has acquired companies with a strong indigenous
presence like Mey Içki in Turkey, ShuiJingFang in China and
Halico in Vietnam in fiscal 2012. In June last year, Diageo also
bought Cabin Fever Maple Flavored Whiskey in the U.S. to tap the
growing markets for flavored whiskey and craft distilling.
Currently, Diageo plc carries a Zacks Rank #2 (Buy). We would
also recommend stocks like
Compania Cervecerias Unidas S.A.
), which carries a Zacks Rank #1 (Strong Buy), as well as
Molson Coors Brewing Company
Grupo Modelo, S.A.B. de C.V.
), both of which carry a Zacks Rank #2 (Buy). These companies
also offer attractive exposure to alcoholic beverage