Diageo, the British spirits-maker that acquired Vijay Mallya’s United Spirits, may sell the whisky business it acquired as part of that deal to address competition issues in the UK.
Diageo has offered to sell most of Whyte & Mackay, with the exception of two malt distilleries, it emerged on Monday. Britain’s Office of Fair Trading (OFT) said it had found that a merger could lead to “substantial lessening of competition in the supply of blended whisky to retailers.”
“The parties are major suppliers of bottled blended whisky to retailers with Whyte & Mackay also being an important supplier of own-label blended whisky,” the OFT said in a statement. “The OFT’s investigation found that there is substantial competition in the retail sector between Bell’s whisky, a Diageo label, and Whyte & Mackay’s own label and branded blended whisky,” it added.
OFT analysis
Retailers had expressed concern about a rise in whisky prices as a result of the merger, while the OFT’s analysis had found that competitor brands would not have the capacity to offset the loss of competition that followed the merger. “Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers,” said Chris Walters, Chief Economist at the OFT.
While Diageo holds around 21 per cent share of the blended whisky market in the UK, and Whyte & Mackay’s own-branded whisky holds around 6 per cent, it was the latter’s private label business that was causing concern for the OFT, says Trevor Sterling, an analyst at Sanford Bernstein in London. “The OFT is exploring what percentage of the private label market Whyte & Mackay holds in the UK. The whole private label market is around 18 per cent of the UK market.”
Shares of Diageo rose around 1 per cent in London early afternoon trading. The Whyte & Mackay assets could attract other makers of value and private label whisky such as French firm La Martiniquaise or Belvedere, or more likely, large producers of scotch such as Bermuda-based Bacardi or US firm Beam.
Sterling said the price of the assets would be hard to estimate given the low number of deals involving largely-private label producers that had taken place in recent times, except United Spirit’s acquisition of Whyte & Mackay back in 2007.