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November 25, 2013 4:25 pm
Diageo, the world’s largest spirits producer by sales, has offered to sell whisky brand Whyte & Mackay to allay competition concerns sparked by its purchase of a stake in India’s United Spirits a year ago.
The UK-listed group said it had made the offer in response to the Office of Fair Trading, which said on Monday that its investigation had found “that there is a substantial competition in the retail sector between Bell’s whisky, a Diageo label, and Whyte & Mackay’s own-label and branded blended whisky”.
The watchdog said a number of retailers had reported concerns that bottled blended whisky prices could rise as a result of the proposed combination of the two brands.
Chris Walters, the OFT’s chief economist, said: “These companies are two of the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers . . . we concluded that the likely loss of competition could give rise to higher prices for retailers and ultimately consumers.”
Diageo, which is the world’s biggest producer of scotch, acquired last year a 25 per cent stake in the Indian group controlled by Vijay Mally.
The Johnnie Walker and Guinness owner has made it clear that the focus of the acquisition was to bolster its position in India, implying it was willing to make concessions in the UK.
However, it proposes keeping two malt distilleries as well as the Dalmore premium malt brand.
Diageo’s Bell’s had a UK market volume share of 17.4 per cent in September and 16.2 per cent by value, according to Nielsen, the market research company. Whyte & Mackay has a 7.6 per cent share of volume, according to London-based International Wine and Spirits Research.
Competition concerns are triggered when one party has a market position of 25 per cent or more.
Trevor Stirling at Bernstein Research said Whyte & Mackay was a relatively significant producer of scotch, accounting for 8 per cent of global output in 2009, thanks to its ownership of one of the seven large grain distilleries in Scotland.
You can justify buying some tipples on the basis that the more you drink of them, the less you quibble about the taste. Whyte & Mackay, an affordable whisky, falls into this convivial category. Diageo is unlikely to bother “premiumising” W&M. The drinks group has offered to sell the brand in return for clearance to take control of United Spirits of India, W&M’s owner, writes Jonathan Guthrie.
“Effectively, Whyte & Mackay are one of the largest suppliers of bulk scotch to branded companies and retailers,” he said.
“In recent years, Whyte & Mackay has been trying reduce its reliance on the bulk business and in the latest year the proportion of net sales from its own brands rose to 45 per cent from 38 per cent in the prior year.”
Analysts said potential buyers of the grain distillery included Bacardi and Beam.
Analysts at Goldman Sachs said: “Given Diageo’s global leadership position in scotch, we believe Whyte & Mackay was not viewed as a core asset within the United Spirits transaction for Diageo, with the transaction being principally driven by Diageo’s desire to improve its route to consumer within the Indian spirits market.”
United Spirits acquired Whyte & Mackay in 2007 for £595m. The company has annual global sales of about 1.2m cases of scotch, against Diageo’s 30m.
The OFT said that while it was considering Diageo’s offer, it would not refer the merger to the Competition Commission.
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