Will Vijay Mallya Sell His Last Jewel?

Kingfisher brand owner and India's largest beer maker United Breweries Ltd (UBL) is the last big business asset of beleaguered Vijay Mallya in the country that is being targeted by deal makers for their pound of flesh now. If the media reports are to be believed, Dutch-brewer Heineken International BV has mandated merchant bankers to help increase its already majority stake in the company, timing it by the mounting pressure on Mallya from all corners.

Mallya has already become a minority owner in United Breweries with his share holding dropped to around 25 per cent from the earlier 37.5 per cent. UBL, which is an undisputed market leader with a share of more than 55 per cent in the domestic beer market, is majority owned by its foreign partner Heineken after it bought an additional 5 per cent stake in the company from the market as well as Diageo-controlled United Spirits Ltd in 2015. Heineken holds 42.07 per cent in UBL at present.

Heineken's current holding in United Breweries is through three companies - Heineken International B V, Heineken UK Ltd and Scottish & Newscastle India Ltd. While Scottish & Newscastle India (owned by Heineken following its worldwide takeover of Scottish & Newcastle in 2008) holds 34.04 per cent other two holds 4.82 per cent and 3.21 per cent respectively.

For Vijay Mallya, who was instrumental in growing the company and its iconic Kingfisher brand to today's level not only in India but also in many international markets after inheriting it from his late father Vital Mallya in 1983, is not only the most valued asset but the only entity that promises profit and rich cash flow constantly in his entire UB group. This is mainly due to its unique management structure where the foreign partners (both S&N and Heineken) remained at the finance control.

Although, Heineken always wanted to increase its stake and the management control in United Breweries, it always allowed the Mallya legacy to continue within the day-today management, which the industry watchers say, was due to Mallya's strong expertise and hold in the Indian liquor market that is peculiar in nature with multiple set of regulations and customer profile.

It is natural that the majority owner Heineken, which is also one of the top brewers in the world with strong presence in several international markets, would want to have its full control on the large and fast growing Indian beer market through United Breweries.

For Heineken, owning this large market through a wholly owned unit is also part of its sustainability as its other markets have already witnessed not only rising competition from global rivals but also growth saturation.

Although Mallya would no doubt try his level best to retain this last jewel as part of his survival as well as India legacy, the financial pressure that haunts Mallya in India of late may force him to dilute a part of his most valued stake in United Breweries too. The market capitalisation of United Breweries as on Tuesday (15 March) stands at Rs 20,910 crore. So, the value that his entire stake can fetch in United Breweries, going by the enterprise valuation, could be much higher.

Since he has already announced his retirement plan and making UK his retirement home, things may even go in the same direction as United Spirits in which he was forced to sell his majority stake to Diageo. While the Diageo exit was due to financial pressure caused mainly by the huge debt that the company created for chasing overseas acquisitions besides the losses of grounded Kingfisher Airlines related transactions, he could still manage a better valuation for his stake in United Spirits along with an attractive settlement deal at the final exit. But, in United Breweries, his stock price as well as the settlement (non-compete agreement) are certainly going to be many more multiples of that. So why not?