Johnnie Walker seen gaining in India on Mallya's woes
Maker of famed Scotch could take stake in United Spirits, but it's still no done deal
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For years, Diageo has sought to shore up its operations in India, where it accounts for a tiny fraction of whiskey sales. Now, a struggling airline may give the world's biggest distiller the chance it needs to gain a stronger foothold in the world's biggest whiskey market.
As Vijay Mallya's Kingfisher Airlines has been battered by high fuel costs and falling ticket prices, the Indian billionaire has expressed a willingness to sell part of his United Spirits to Diageo.
A deal would help Diageo, based in London, bolster its position in a US$21 billion whiskey market where a maze of regulations and taxes restrict foreign liquor producers.
Diageo, the maker of Johnnie Walker Scotch, trails global rival Pernod Ricard in the country and has failed in past efforts to close a deal with Mallya.
Diageo has "never been able to secure a market in India as Pernod Ricard and United Spirits have", said Sharan Lillaney, an analyst at Angel Broking in Mumbai. For the British distiller, "this is the best move. You get a company that is among the largest in the world, excellent distribution network, excellent contacts everywhere."
Kingfisher Airlines will need a capital injection of US$600 million in the next two months after defaulting on loan payments following five years of losses, industry consultant CAPA Centre for Aviation said in August. Mallya owns about 36 per cent of Kingfisher through his own holdings and affiliated companies.
Kingfisher this week cancelled all its flights through at least until today after locking out striking workers it said were intimidating other employees. In Mumbai trading on Monday, Kingfisher's shares fell by their daily limit of 5 per cent to 15.35 rupees (HK$2.27).
The gregarious Mallya owns India's biggest brewer, United Breweries, which sells Kingfisher beer. The 56-year-old tycoon also owns a yacht called the Indian Empress, a stake in the country's only Formula One racing team and a cricket squad named Royal Challengers Bangalore.
Diageo and United Spirits have courted each other before with no success, so a deal is far from certain. In 2009, the British company sought a minority stake in Bangalore-based United Spirits. Talks collapsed after the Indian distiller said the offer was too low.