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Diageo spells Uncertainty for Four Seasons Wines

Posted: Wednesday, 14 November 2012 13:45

Diageo spells Uncertainty for Four Seasons Wines

November 14: The$2-billion deal announced Friday by the UK group Diageo to buy up to 53.4 percent of Vijay Mallya-owned United Spirits Ltd., may bring uncertainty for the future of Four Seasons Wines, although it presently has an insignificant interest in wines in their portfolio which also saw the entry and exit of a domestic wine Nilaya in its Indian arm during the last 5 years.

To infer that Diageo is buying a majority stake in United Spirits to gain control of its Four Seasons Wines, currently the second largest producer of premium domestic wine would make a great internet joke on the Indian circuit. It is a miniscule part of the USL Empire though the French winery Bouvet Ladubay, a former subsidiary of Champagne Taittinger, which Vijay Mallya bought in 2006, does add glamour and rupees to the top line and the total global portfolio.

London-listed Diageo of Johnny Walker fame (Red, Black, Double Black, Yellow, Green and Blue) in India, is initially buying a 27.4% in USL, triggering a public offer to all shareholders at the announced Rs. 1440 a share, for a further 26% , taking its total shareholding eventually to 53.4%. Diageo is aggressively expanding in emerging markets and the deal will give it a commanding presence in the world's biggest whisky market.

Four Seasons Wines was carved out by USL, partially as a long term vision of Vijay Mallya and partly for his known love for wines, to be added to his beverage portfolio. It has been steadily increasing its wine production and market share over the last 3 years, taking it to around 60,000 cases annually. This has made it the second largest producer behind Sula, overtaking Grover Vineyards which touched a nadir last year due to a myriad of problems.

Abhay Kewadkar, Business Head and Chief Winemaker of Four Seasons, was in Italy last weekend, attending the World Wine Symposium where he poured Ritu-labeled wines in their portfolio with the registered participants in a bid to further promote exports. When the news came- earlier speculations were that only a minority stakes were being sold to Diageo, he was as surprised too. But he declined to comment on what impact the sale of majority stake would have on the wine division’s aspects. ‘Dr. Vijay Mallya, our group chairman or Mr. Ashok Kapoor, MD and President of USL only can comment on this aspect. All I can tell you is that the participation at the WWS has been very fruitful and we have got a very positive feedback from the delegates.’

Four Seasons is not the only wine project of Mallya. The Kingfisher Wines were introduced by United Breweries Ltd., his beer brewing arm producing the Kingfisher Beer label. Bottled in South Africa, the entry level wines are limping along in the wine sales marathon and could soon retire hurt as did the attempts to market imported wines which failed to make an impact in the market and were withdrawn a couple of years ago. The only exception were wines from the Loir Valley based Bouvet Ladubay owned by USL.

Diageo had introduced with much fanfare, a domestic wine Nilaya in 2007. It was produced by Mountain View and Renaissance Wineries in Nashik. The  blue heaven as the label implied, turned hellish as the sales never picked up and within a couple of years the project was dropped like a hot potato when there was a change in the top management of the Indian company with a promise that ‘I’d be back.’ Their imported wine portfolio has also failed so far to create ripples in the 280,000 imported wine market.

Meanwhile, shares of USL saw a massive rally on Monday with the script recording an unprecedented rise of Rs. 434 a share, a spike of 35%, increasing to Rs.1835 a share. This is a 27% premium over the Diageo offer price of Rs. 1440, putting a question mark on the Open Offer, if the prices stabilize at these levels. The scrip touched a high of Rs.1942 during the Diwali trading yesterday and is currently hovering around Rs.1800. According to financial experts, the price issue is not expected to make any difference in the control of the company and the deal is as good as done and Diageo will soon be the master of Four Seasons Wines, even as it may be too early for it to contemplate any action regarding the wine operations.

Subhash Arora

Tarsillo Nataloni Says:

Hi, Read your article DIAGEO/ USB. Quite outspoken. Congrats! Tarsilo Nataloni

Posted @ November 16, 2012 12:25


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