Mallya wants to buy back Heineken stake in UB Group

Mumbai: UB Group chairman Vijay Mallya has said he'd like to buy back Dutch brewer Heineken's stake in his company, which Heineken had acquired at the time of its takeover of Scottish & Newcastle (S&N).

Mallya is citing a conflict of business interest as the reason for wanting to buy out Heineken, saying that the Dutch brewer has a ''beer business in India, which has a conflict of interest as Kingfisher is the largest beer brand in the country.'' He said Heineken would have to renegotiate the deal through which it had inherited the business interests of S&N in India.

"While the UB Group has had an excellent and productive relationship with Scottish & Newcastle Plc during the period of the association, we welcome the fact that Heineken will be associated and be a potential shareholder of United Breweries on terms that are yet to be discussed and agreed," UB Group chairman Vijay Mallya had said in January, at the time of the take over. (See: UB promoters plan stake hike after S&N deal)

At the time, Mallya had said there was great potential for combining strengths of the two companies to tap the Indian beer market.

Edinburgh-based S&N is the UK's largest brewer, with brands such as Newcastle Brown Ale and Foster's, and is the world's seventh largest brewer by sales volume. It held a 37.5 per cent stake in Vijay Mallya's United Breweries, which was acquired by Heineken in January when the Danish – Dutch consortium of Carlsberg and Heineken acquired the UK's largest brewer. (See: Carlsberg-Heineken to acquire S&N for $15.4 billion)

As part of that takeover , Heineken inherited S&N's business in the UK, Ireland, Portugal, Finland, Belgium, the US and India, while Carlsberg took over S&N's operatins in France, Greece, China, Vietnam and Russia.

Mallya's concerns on conflict of business interest arises out of the fact that Heineken has a 42.5 per cent stake in Singapore-based Asia Pacific Breweries, which could potentially brew and distribute Heineken beer in India, in direct competition with the UB Group's flagship brand, Kingfisher beer. That being a situation not entirely welcome at UB Group, it would like to see the resolution of this conflict of interest at the earliest.

Industry sources say there are two possible courses of action to resolve this impasse. The first option could be Heineken's exit from the venture, or the second could see this Asia Pacific Breweries come under ''a single umbrella in India,'' possibly that of the UB Group.

In the event that UB Group has to buy out Heineken's stake, the company would have to pay around Rs1,500 crore, which could be a challenge given the company's debt of Rs500 crore. United Breweries controls nearly 45 per cent of the market in India, which is seeing increasing competition from foreign players.

Heineken's partner in the S&N acquisition, Carlsberg, has set up a 4,50,000-hectolitre brewery in association with South Asia Breweries in the country.

The promoters had increased their stake in the UB Group following S&N's takeover.