London-based drinks giant Diageo (LSE: DGE, NYSE: DEO) has bought a controlling stake in Vijay Mallya’s United Spirits group (BSE: 507458) for $2 billion.
The deal gives Diageo – the world’s largest spirits maker – a foothold in the fastest growing market for spirits, ensuring the company meets its’ stated goal of generating half its revenues from emerging markets by 2015.
Reports say Diageo will acquire just over 53% in United Spirits, gaining access to the sub-continent’s most extensive network of production and distribution facilities in a country with the highest per-capita alcohol consumption in south east Asia.
India’s fast growing middle class has traditionally preferred the pricier spirits with higher alcohol content that Diageo is famous for, including brands such as Johnnie Walker and Talisker Scotch Whiskey, Smirnoff vodka and Gordon’s gin among others.
The deal is also welcome news for United Spirits’ flamboyant owner Vijay Mallya who had denied as recently as last week that a takeover by Diageo was on the cards.
It’s believed Mr Mallya will use some of the proceeds from the deal to pay off debts at his embattled airline Kingfisher although the tycoon himself denied this, telling reporters that there will be “no cross-contamination. There has never been, there never will be”.
Diageo’s purchase is the biggest investment by a foreign firm in an Indian entity since the British oil firm Cairn Energy sold a majority stake in its Indian business to Vedanta Resources last year.