Acquisitionof White and Mackay by United Brewries - Case Study

Balaji V, Tarun Pahwa, Devdatta jain (PGDIM 13, NITIE), K.V.S.s. Narayana Rao


Announcement
Scottish spirits maker Whyte & Mackay, popularly identified by its iconic double red lion symbol, was acquired by United Breweries (UB) Group. on 16 th May 2007
Valuation
Whyte & Mackay was valued at GBP 505 million for 100 % stake by United Breweries.At GBP exchange rate of 80.38 Rs /GBP , the deal is valued at Rs 4059.1 Crores. United Breweriies has paid out Rs 9484.84 Crores which is the Enterprise value of Whyte & Mackay

Synergies and Benefits claimed :
The acquisition plugs a "missing link" in the UB product portfolio by giving the company the strong presence it needed in the scotch whiskey market. The acquisition pushes USL's consolidated sales up to 75 million cases per annum. The acquisition brings into USL's fold the InverGordon Distillery, near Inverness. W&M also owns four malt whisky distilleries in Scotland and a bottling facility in Grangemouth.. W&M also gives UB right to The leading Scotch whiskey distiller owns brands including The Dalmore, Isle of Jura, Glayva, Fettercairn, Vidalia vodka and Whyte & Mackay blended Scotch.
United Breweries Group, based in Bangalore, is the world's 2nd largest brewer and the largest in India
Whyte and Mackay Ltd is a Scottish company producing alcoholic beverages. It was founded in 1844 and is based in Glasgow, Scotland.
UB Group was keen on sourcing fillings (immature whisky) from distilleries in Scotland as they don't have much of a value with the maturisation being carried out in India. This will enable purchasing young Scotch at attractive prices, and mature them in house up to various age profile. Hence, it was necessary to create large storage facility so that fillings can be bought in bulk.

Structuring of the deal


UB acquisition of Whyte & Mackay was a leveraged buy Out (LBO) . LBO is a transaction where debt is used to finance the acquisition which is collateralized by the assets of the target firm. An important fact of an LBO is that the debt used for LBO of whyte & MacKay is secured by the assets of the acquired business and the cash flows of the acquired business will be used to service the debt The deal was worth Rs 9484.84 Crores which is the enterprise value of Whyte & Mackay

United Breweries used a Special purpose Vehicle called United spirits for acquisition of Whyte & Mackay . UB paid GBP 505 million which accounted for 100 % stake in Whyte & Mackay . This formed the equity component of the new ly launched company United spirits

The debt to equity ratio of the newly launched company is 1.336 . UB stake in United spirits is limited to its equity investment of 505 Million GBP . The Assets of Whyte & Mackay would be transferred to the balance sheet of united spirits which would be used to collateralize the debt taken for Acquisition


Financing of the deal
Whyte & Mackay is a 100 per cent subsidiary of UB, through an intermediary holding company USL established for the purpose. Acquisition finance for the transaction to United Spirits was provided by ICICI Bank and Citibank. The debt of £ 325 million was extended by ICICI to the intermediary holding company, while £ 310 million was extended by Citibank to USL. The UB Group is expected to part-fund the acquisition of Whyte & Mackay by selling a part of 17 million shares it has deposited in a trust for this purpose.

Advisors to the Buyer and Sellers
The Buy side advisors were UBS (united bank of switzerland) and the Sell side advisors were Citigroup

Subsequent Performance
The combined profits of United Spirits and Whyte & Mackay are expected to be earnings accretive from the first completed year of operations after accounting for the cost of funds applied to the acquisition