Shaw Wallace

Our Philosophy .

 As one of India's foremost liquor manufacturers and exporters with a host of brands
that have captured the imagination and taste of alcohol consumers in the country as
well as abroad, we believe, it is superior quality that effectively underlines our primary
goal of attaining a larger market share.
 For the past 116 years of existence, we have carefully cultivated and abided by a
principle that has been synonymous with a tradition of excellence, upholding high
standards be it in our products or in our customer focus.
 One need not settle for anything less than the very best. To that end, our customers in
India and abroad are treated to a medley of only the finest selection of alcoholic
beverages, carefully brewed and packaged under our label.
 In the years to come, we at Shaw Wallace aim to explore and conquer potential markets
across the world, besides increasing our domestic production in keeping with the ever-
growing demand for our products within India.
 A constant strive for perfection along with a doctrine that stresses on consistent
innovation and improvement, we at Shaw Wallace intend to surpass the most stringent
standards of quality in liquor manufacture and exports.

UB Group:

The UB Group (United Breweries) Group is a multi-faceted conglomerate with business

interests in Beverage Alcohol, Pharmaceuticals, Media, International Trading, Aviation,
Fertilizer, Research & Development, and Infrastructure Development.

The UB Group was founded by a Scottish gentleman Thomas Leishman in 1915. The company
used to manufacture beer at that time and took its initial lessons in manufacturing beer from
South Indian based British breweries. In August 1947, Vittal Mallya became the company's first
Indian director. A year later he became the Chairman of the Group. United Breweries came into
limelight by manufacturing bulk beer for the British troops, which was transported in huge
barrels. In 1950s and 60s, the group expanded rapidly and made several acquisitions. McDowell
was added as one of the Group subsidiaries. This helped UB Group to venture into wines and
spirits business. Kingfisher, the Group's most visible and profitable brand, made its entry in the
sixties. Thereafter, the Group moved into agro-based industries and medicines when it acquired
Kissan Products and formed a long-term relationship with Hoechst AG of Germany to promote
Aventis Pharma.

After Vittal Mallya's death in 1983, his son Vijay Mallya assumed the mantle of the group. Vijay
Mallya inducted professional management and consolidating the Group into individual
operating divisions. In 1988, UB Group acquired the global Berger Paints Group with operating
companies across four continents. The paints business was divested for significant value in
1996. After India adopted economic liberalization in 1991, the UB Group decided to retain
interests in only those businesses that were globally competitive and did not depend upon
fiscal tariff protection. Today, UB Group is the third largest manufacturer of Spirits products in
the world. In 2005, the Group entered aviation sector with the launch of Kingfisher Airlines
Limited. With in a short time the airlines has captured an impressive market share and has
established a niche identity for itself.

Business Interests of UB Group:

Beverage Alcohol: The UB Group is 3rd largest spirits marketer in the world, with overall sales
of 60 million cases. The company offers 140 brands at varying price points. Some of the famous
brands of the UB Group are: Bagpiper Whisky, McDowell's No.1 Whisky, Director's Special
Whisky, McDowell's No.1 Brandy and McDowell's Celebration Rum.

Pharmaceuticals: The group's company Aventis Pharma Limited is the second largest
pharmaceutical multinational in India. It develops and markets branded prescription drugs and
vaccines.

Media: The UB Group also has a shareholding in Asian Age Holdings Ltd, the company that
owns and manages daily newspaper, The Asian Age.

International Trading: The Group's company UB Global Limited is a recognized export house
engaged in the export of Beer, Spirits, Leather Footwear and Processed Foods. The Company
also exports Pharmaceutical Products and customized perfumeries.

Fertilizer: Mangalore Chemicals & Fertilizers Limited is under UB Group's management. It has a
manufacturing capacity of 2,17, 800 MT of Ammonia and 3,80,000 MT of Urea.

Research & Development: Vittal Mallya Scientific Research Foundation (VMSRF) was
established in 1987 with the objective of developing newer and novel technologies that will
have substantial application in industry and health care. The foundation is it is recognized by
the Departments of Scientific & Industrial Research (DSIR), Dept. of Biotechnology (DBT),
Council for Scientific and Industrial Research (CSIR) and the Ministry of Finance, Govt. of India.

Aviation: UB Group entered aviation sector in 2005 with the launch of Kingfisher Airlines
Limited. Kingfisher Airlines has captured an impressive market share and has established a
niche identity for itself. The airlines recently acquired 25% stake in Deccan Airlines.

Shaw Wallace Breweries to merge with UB

Group
BS Reporter / Bangalore November 29, 2007

It is consolidation time for Mallya's firm

 
The Rs 4,000 crore United Spirits will be merging Shaw Wallace with itself. United Spirits, a part
of the UB Group, had acquired Shaw Wallace for around Rs 1,300 crore in mid-2005 .
 
UB Group President and Chief Financial Officer Ravi Nedungadi said that the merger would
begin soon. The move will add another Rs 60 crore to United Spirits’ bottomline of close to Rs
500 crore and around Rs 350 crore to the topline.
 
He also said that Whyte & Mackay, which was recently acquired for around $1.2 billion, would
stay on as a subsidiary.
 
United Spirits is currently the third-largest distiller in the world with sales of over 66 million
cases powered by 15 millionaire brands. Brands from Shaw Wallace, which operate in the
volume segment, have contributed to this growth.
 
UB Group Chairman Vijay Mallya, speaking to reporters after United Spirits’ annual general
meeting, said that the next financial year would be a period of consolidation for the group.
 
“To ensure completeness of product offering as well as to ensure a permanent supply of critical
inputs, a number of acquisitions has been completed over the last 18 months. Whyte &
Mackay, Bouvet Ladubay and Liquidity have been acquired in the spirits business, while we
acquired 46 per cent in Deccan Aviation. We need to consolidate these acquisitions and will
thrust forward,” he said.
The Rs 4,000 crore (Rs 40 billion) United Spirits [ Get Quote ] will be merging Shaw Wallace [
Get Quote ] with itself. United Spirits, a part of the UB Group, had acquired Shaw Wallace for
around Rs 1,300 crore (Rs 13 billion) in mid-2005 .

UB group president and chief financial officer Ravi Nedungadi said that the merger would begin
soon. The move will add another Rs 60 crore (Rs 600 million) to United Spirits' bottomline of
close to Rs 500 crore (Rs 5 billion) and around Rs 350 crore (Rs 3.5 billion) to the topline.

 
Cumulatively, UB Group is raising close to Rs 2,000 crore through rights, QIP and warrants
across United Breweries, UB Engineering and UB Holdings to partly settle debt and for
operations.

UB to to raise brewing capacity by 20 per cent; Shaw Wallace integration underway news 07 July
2008

The UB Group has announced plans to invest Rs1,000 crore in the next three years to raise its
brewing capacity by 20 per cent from its current 60.25 lakh hecto litres to 71.50 lakh hecto litres
per annum, as part of a capacity expansion programme, which commenced in April 2006.

For the current financial year the Vijay Mallya-led group has a capital expenditure plan of Rs488
crore.

According to UB Group chief financial officer Ravi Nedungadi. the expansion would be funded
by the recently concluded rights issue of Rs425 crore and the remaining through combination of
internal accruals and debts.

UB is setting up a facility in Andhra Pradesh. This will have an annual production capacity of 60
lakh cases per annum to begin with and 120 lakh cases eventually. The company also plans to
have a greenfield plant in Karnataka with a capacity of 30 lakh cases a year.

Nedungadi told CNBC-TV18 in an interview that the company was positive about the
acquisition of the Shaw Wallace package. The consolidation of the package will depend on the
time when UB Group is able to understand the actual structure of the Shaw Wallace group and
resolve all issues there, he says.

"We have borrowed Rs 1545 crore for the total acquisition of the Shaw Wallace package.
Yesterday, we have used part of the sales proceeds, to pay a part of the debt, and reduce it. Right
now it comes to over Rs 1000 crore."

On the debt-equity ratio, he said, "We can talk about the combined debt equity position, only
when we have got all the swap ratios and the equity valuations in. We know that the work is
going on. But we had obviously reckoned that, cash would come in from the sale of non spirited
assets. In order to opt for that loan, we took it. And this is very much according to the plan," he
told the business channel.

Nedungadi also disclosed that the process of management integration and the integration of the
market phases has already started. "The work has started very closely between UB companies,
Shaw Wallace sales people and the procurement people. So we can expect that synergy to flow
straight away. In terms of the legal merger of companies, Shaw Wallace structure was fairly a
complex structure. We had to simplify and reduce it as much as possible. We have mandated
professional advisors to come up with the exact road map for the merger and we expect them to
announce it within next 45 days."

Important:

Merger and acquisition of any company always interesting for people who are in business.
Every cases  of this type helps us to understand the mechanism of amalgamation. Although this
case is 4 years old but still have some importance. Silence of government authority is also
notable in the case.

  
Shaw Wallace Company
Shaw Wallace is started in 1886 in Calcutta. In 1987 it came under Jumbo Group, lead by Mr. M
R Chhabria.  Jumbo Group is an international business conglomerate based in the United Arab
Emirates. The group is a diversified group with business includes beverages, Tyres, Gelatines,
Agrichem, Engineering, Tanneries, Freight Forwarding and Electronics. Its business is
established across Hong Kong, Singapore, Japan, South Korea, Vietnam, Russia, United
Kingdom, Sri Lanka, South Africa and India. Shaw Wallace was comprises of following divisions:
 Liquor Division
 Beer Division
 Wine Division
 International Business
 Traditional Business
 
After demise of Mr. M.R. Chhabria in April 2002, Ms. Vidya Chhabria became chairperson of the
group. Chhabria’s daughter Komal Chhapria became executive director of Indian flagship of
Shaw Wallace & Co (SWC). The $2 billion Jumbo group’s Indian operations include flagship
Shaw Wallace Co Ltd, Falcon Tyres, Dunlop India Ltd, Hindustan Dorr-Oliver, Mather & Platt,
Gordon Woodroffe and New Video Ltd.
 
UB Group
The UB (United Breweries) Group was founded by Thomas Leishman in 1915. It started its
business with manufacturing of beer. Vittal Mallya became first Indian Director of UB group in
1947. In 1983, Vijay Mallya, son of Vittal Mallya, become chairman of the group. He handled the
group with more professional management. In 1988, group acquired Berger Paints. Group
divested paint business in 1996. UB group has following divisions:
 Beverage Alcohol
 Pharmaceuticals
 Media
 International Trading
 Fertilizer
 Research and Development
 Aviation
 
How Merger Proceed
Shaw Wallace controls 10% of the market of the country liquor in States where it operates. As
per Ms. Komal C Wazir, Shaw Wallace was present only in Uttar Predesh. Company would try to
enter Maharashtra, Karnataka and Rajasthan. Company’s beer sales share in country also
increased from 33% in the previous year to 35% in the year 2003-2004.
 
In 2004, Shaw Wallace Breweries Limited (SWBL) was a joint venture between Shaw Wallace
and South African Breweries was having market share of 36% in India. United Breweries was in
the 1st place with 43% market share in the breweries market.
 
Ready to Drink (RTD) is not selling well in India. RTD was introduced in 2002. Bacardi’s Breezer,
United Breweries’ Shotz, Balarampur Chini’s Xotica, Shaw Wallace’s Vebe were hardly selling in
the market. In 2003-2004 3.3 lakh cases of RTD sold. High price seemed to be reason of less
selling.
 
In October 2004, Shaw Wallace announced that they were eyeing on the export market
Australia, France and also ramping up export in Australia. In India, Royal challenge, a premium
whisky, increased 54% market share in last year to 65% last year in its segment. Its other brands
like Antiquity, Antiquity Super, Director’s special, Haywards Fine etc were controlling 16%
market share. Shaw Wallace was aiming to become number one or two in every category over
the next years. Shaw Wallace president Mr. Samsuddin announced that company was
upgrading its machinery to improve manufacturing process. It was expecting 17% y-o-y growth
in the next year. Cost of molasses was a concern for the company. Prof Phillip Kotler was added
as a long term investment and company was expending more on golf as a part of marketing.
 
Shaw Wallace was doing brand extension and new product lunch in the premier segment only.
They said that they did not have any plan to lunch any new product in the regular segment.
They started brand extension with White Mischief brand. They already launched gin, vodka,
brandy and Black Mischief rum. The entire product range belongs to Mischief line of brand.
They also had a plan of launching new brand of malt whisky shortly.
 
United Brewers informed BSE, in November 22, 2004 that it was evaluating unsolicited offer
strategic alliance with equity alliance. UB already had Rs. 250 Crore investment from Scottish
and Newcastle (S&N) couple of years back.
 
In India only 60-65% bottles were returned to the company and rest of the bottles are injected
by the companies. The injection rate is around 15% per annum. Taking advantage to the
shortage, second hand bottlers increased price of bottle from Rs. 3.50 to Rs. 7. This price is
equal to the price of new bottle. To break monopoly of bottlers UB group and SWBL came
together because it was affecting bottom line of both the company. Earlier they had a so bitter
relationship that there was undercutting to the extent of loss.
 
In November 2004, Manu Chhabria’s widow Vidya Chhabria told McKinsey (based on Singapore)
to search buyers for several Chhabria companies. There was an inheritance problem in
daughters of Late Manu Chhabria. Ms. Komal K. Wazir was only interested to run the company
but others wanted to sell it.
 
In December 2004, Vijay Mallya of UB group announced that he had entered into an agreement
with Britain’s largest brewer S&N for selling 37.5% stake in the company. Under the terms of
the deal S&N would have 17.5% stake in the flagship company UB Ltd for Rs. 217 Crore (Rs.
575/share). British company will further infuse Rs. 247 Crore through non convertible
redeemable preference share. They would also come with the open offer of 20%. Post deal UB
and S&N both will have 37.5% each in the UBL. Rest of the shares will be with the Indian Public
and Indian Financial Institutions. Through the deal UB was expecting to capture more than 50%
market of Indian Bear Market. This deal would create more pressure on second company Shaw
Wallace.
 
Vidya Chhabria, chairperson of $2 billion Jumbo group was in the list of 50 most powerful
women in business internationally in 2004. She ranked 38 th place in the list and only Indian in
the list. She was in the list for third time in succession.
 
On February 10, 2005 BSE SENSEX closes at 6,577.83 points. Shaw Wallace gains 10% and closes
at Rs. 204.15. Mc Dowell & Co Ltd, a flagship of the UB Group also increases 10% to Rs.153.05.
 
UB group was the highest bidder for sprit division of SWC which was put in the block. The UB
group had bid Rs. 1251 Crore. Later SWC changed it plan and invited bid for 55% stake in the
holding company.
 
On February 23, 2005, Mr. Vijay Mallya announced 25% open offer for Shaw Wallace Rs. 250.
This is an 8.2% premium over the last closed price. He also indicated a breakdown of talks
between UB group and Ms. Vidya Chhabria of Shaw Wallace Company (SWC). This offer valued
Shaw Wallace Rs. 1200 Crore which is 120% premium over market capitalization of last 12
months. Mr. Mallya also said that none of his company has acquired any stake in Chhabria
Group Company. Total cost of the open offer will be Rs.300 Crore. Open offer of UB group is
through group companies McDowell & Co, Phipson Distillery and United Sprits.
 
After the acquisition UB group will become world’s second largest breweries company with 49.5
cases volume. Business volume of UB group was 35 million and SWC had 14.5 million cases.
 
Share holding pattern of SWC is shown in Exhibit 2. It is clear that open offer of UB group is
targeted part of institutional investor also. Although Mr. Mallya clarified that he needs to come
up with offer after the getting promoters share also. SWC has 40% of the equity of Shaw
Wallace Distilleries, the sprit company, and has a 50% stake in SAB Miller India which is a joint
venture between South African Breweries and Shaw Wallace for bear business. All group
companies of Jumbo Group including SWC has cross holding.
 
 
Move of the financial institution would be vital in SWC. If they opted for open offer to sell their
entire stake then UB group will have mandatory 26% stake to move or block any special
resolution. Financial performance of Shaw Wallace had been slackening. Its revenue is stand
still at Rs 100 Crore. Its Profitability has slipped since 2002 and operating income has also fallen
dramatically. It was the time liquor and tobacco companies were making profit worldwide.
Corporate governance of SWC board needs to show that they are for all stock holders not only
for promoters.
 
Next day of the open offer announcement by UB group for SWC, share price of SWC had fallen
2.5% to Rs. 225. Share price of UB flagship Company McDowell & Co. had rose 10% to
Rs.172.55.
 
Shaw Wallace said they were considering legal option against the UB group bid but it is an open
offer and legal options are limited. LIC chairman LN Bhardwaj told that they were considering
the offer.
 
February 26, 2005, Shaw Wallace announced that it had dropped 6 brands. Stopped brands are
Malkajgiri Malt Whisky, Punch Fine, High Command, Gold Medal Brandy, Black Panther Rum
and Kings Blend Brandy. They said the increase in the raw material cost is the reason for this
discontinuation. Shaw Wallace said that they reworked their brand strategy and now the focus
would be on improving the product mix and enhancing the value of existing brands.
 
Calcutta High Court passed a stay order on selling of SWC stock after a petition by three
companies Visishth Chai Vyapar Pvt Ltd, MKJ Enterprises and MKJ Developers Ltd. They
appealed that they had given a short term loan of Rs. 80 Crore to SWC in 1993-94. Now if
ownership trademark and brand names are transferred then recovery of money will not be
possible. Later there was an out of court settlement of Rs 57 Crore.
 
In March 20, 2005, SWC announced that they are open to any fair price for selling off. Earlier
they hold the sell off of 55% stake of Chhabria family.
 
March 31, 2005. Vijay Mallya announced that UB group had closed the deal with Chhabria
family owned Jumbo World Holdings Ltd (JHWL) for Rs. 1330 Crore ($300 m) for a stake of
54.54% share of SWC. The deal is evaluated as Rs 325 per share. UB group also said than open
offer price has been revised to Rs.260 per share. Majority control of Narmada Gelatine Ltd will
be divested to Jumbo affiliate as soon as practicable to maintain Jumbo Management Team.
 
UB group also in the process of Herbertsons Ltd, the make of Bagpiper whisky, after the out of
court deal with Kishore Chhabria.
 
When asked about the over valuation of Rs1300 Crore for SWC Mr. Mallya said the every year
SWC and UB spend Rs 200 Crore each for just fighting with each other. This will now be added
to the bottom line. There would be two companies United Breweries and SWC still FY 2006 and
then they would be merged to United Sprit. Mallya also clarified that he was only interested in
sprit business and no other business. This also excludes bear joint venture of SWC. Industry
estimate for valuation is Rs. 80 Crore for a million cases.
 
Regulatory and Legal Issues
Competition Committee of India (CCI) might investigate any deal (involving two Indian
companies) in which exceeds Rs.1000 Crore or where the combines’ asset exceeds Rs. 300
Crore. When two Indian companies involved the threshold limit is Rs 4000 Crore for assets and
Rs. 12000 Crore for revenues. UB-SWC deal qualified for both the counts. India market capacity
is 110 million cases of Indian Made Foreign Liquor (IMFL). UB and SWC will have together 55
million case capacity i.e. more that 50%. A huge gap between other player and the group is also
a matter of concern. Other players like Radico Khaitan, Mohan Meakins and Seagram having
market share of 6-7 million cases.
 
How the Deal was financed
The deal was financed by borrowing $300 million from ICICI bank win equal proportion of
foreign and domestic currency. UB group has paid Rs 1545 Crore including Rs.312 Crore for
acquisition of 25% share through open offer. Post open offer UB group has 75% share.
Realization of Intended Object
UB Group becomes the third largest sprit company in the world. Britain’s Diageo Plc is in the
first place and France’s Pernod Ricard PA (after buying Britain’s Allied Domecq) is in the second
position.
 
Synergy in the merged entity
 Increased bargain power with monopolistic customer (Government share of market is
65% and Private market share of about 16%)
 Economics of scale of distribution system.
 Increased bargaining power with the suppliers like bottles
 Organizational savings arising from consolidation through elimination of multiple offices
and duplication of manpower
 Reduced promotion spent and improved market realization
Post Merger Situation
In August 2006, Shaw Wallace Financial Services and Shaw Wallace Breweries limited merged. It
was declared in 59th AGM of Shaw Wallace in September 2005. It was also declared that
combined entry had 130 brands out of which 35 brand fetch 90% of the profit. McDowell
announced that following eight companies were amalgamated into one entity of McDowell
India Sprits Ltd and later named as United Sprit Ltd.
1. Phipson Distillery Ltd
2. United Spirits Ltd
3. Herbertsons Ltd
4. Triumph Distillers and Vintners Pvt Ltd
5. Shaw Wallace Distilleries Ltd
6. Baramati Grape Industries Ltd
7. United Distillers India Ltd
8. McDowell International Brands Ltd.
 
 
Long standing legal battle of Shaw Wallace ended on October 1, 2007. It had been settled for
mere Rs 34.44 Crore, which is only 7.5% of the original demand i.e. Rs. 464 Crore. This had
cleared the barrier of legal merger of Shaw Wallace into UB Group.
 
Shaw Wallace passed board approved merging of the company with United Sprit Ltd. Shaw
Wallace shareholder got four share of United Sprit for every 17 share they hold.
 
Gains to shareholder of target and acquirer
Gains of Target (Shaw Wallace Company)
 EPS has increased significantly from 0.02 in 2003-2004 to 6.14 in 2007-2008. Details are
given in Exhibit 4.
 Net profit also increased from Rs.0.09 Crore in 2003-2004 to Rs. 29.48 Crore in 2007-
2008. Details are given in Exhibit 5.
 Operating profit margin, Gross profit margin and Net profit increased significantly.
Details are given in Exhibit 5.
 Net Cash flow from operating activity also increases. Details are given in Exhibit  7
 Dividend percentage also increased. Details are given in Exhibit 8
 Stock Price of Shaw Wallace was below Rs. 250 before Jan 2005 but it was more than Rs
250 at after June 2007. Merger has created a large amount of share holder’s value for
Shaw Wallace Company.
 
A study by Assocham said that Shaw Wallace was in the 10food and beverages company in
terms of market capitalization. It had given 261 percent return in 2004-2005 against 123
percentage return in 2003-2004. It occupied last slot in terms of market capitalization in 2003-
2004.
http://www.iloveindia.com/economy-of-india/top-50-companies/ub-group.html

http://money.rediff.com/companies/shaw-wallace-and-company-ltd-
merged/11100008/bse/week

http://www.rediff.com/money/2007/nov/29ub.htm

http://www.domain-b.com/companies/companies_u/UB_Group/20080707_ub_group.html

http://raktimb.sulekha.com/blog/post/2009/01/shaw-wallace-ub-group-merger-a-case-
study.htm