Diageo-United Spirits deal: Vijay Mallya’s failure in other ventures outside liquor business still a big puzzle

R Sriram, ET Bureau Nov 10, 2012, 04.04AM IST
(Vijay Mallya )

MUMBAI: On a typical, hot muggy day in Chennai in the early 1990s, visitors to the stately Narada Gana Sabha were surprised and perhaps shocked out of their wits to see a scuffle involving a group of people.

The auditorium, bang in the heart of the city, normally hosts music and dance performances, but the sound was not the mellifluous tunes of Carnatic ragas but the unmistakable noise of a fight accompanied by shouting.

A group of people was trying to get its hands on a man who had just entered the hall, and it was being prevented by some others.

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A few minutes later, it was all over, the protestors had dispersed still shouting slogans and the gentleman went about his business.

That man was Vijay Mallya, the owner of a string of liquor companies, which made popular brands like McDowell and Bagpiper.

The protestors were employees of Best & Crompton, a struggling engineering company, which did not have the money to pay salaries. They had come to the annual shareholders' meeting, hoping to corner Mallya, but did not succeed.

Mallya owned a lot of companies then. Some did engineering work, others were liquor firms, and there was Kissan, too.

The famous ketchup brand was bought by Hindustan Unilever (then Hindustan Lever) some time later but was owned by the UB Group for many years.

That episode at Narada Gana Sabha made the morning papers accompanied by photographs. Best & Crompton was a well-known local company and its troubles were natural fodder for news-hungry reporters.

Then it was forgotten, buried in the daily news avalanche, and Mallya moved on. He sold Best & Crompton some years later and the company continued to hobble along till new promoters arrived.

Nearly 20 years after the episode, in another era and in another city, Mallya is still fighting the same battles (that is till recently, and before the October agreement with employees of his airline company, Kingfisher Airlines): unpaid, angry employees, protest marches and the sad, tragic suicide of the wife of a Delhi-based employee.

One company owned by his group has been effectively shut, another is struggling under debt though it is making profits and owns some very profitable brands.

On Friday, Mallya took an important step to set right his group's finances by agreeing to let British drinks firm Diageo Plc take control of his most successful business, United Spirits.

Diageo will buy some of Mallya's stake, invest some more in the company, and make an open offer for 26% to public shareholders. If all goes well, it will end up owning 53% in United Spirits.

Mallya's father, the late Vittal Mallya, bought the shares of a few liquor companies from Englishmen who were leaving India after 1947, forming what later became known as United Spirits.

Once the latest deal is complete, ownership will transfer to another London-headquartered firm, albeit one with a Spanish sounding name.

"The timing was not good. The writing was on the wall," said Ravi Jain, Mallya's former partner in a beer venture. Lenders to Kingfisher Airlines have been exerting immense pressure on Mallya to invest and revive the airline.

Now that he has got the money, banks can expect some loan repayments to happen and some investments also, though it will be extremely odd for a businessman to sell a profitable liquor company to help turn around a loss-making airline business.

"This is a panic reaction to a desperate situation. This is not part of any planned strategy. Hence, I do not think it adds to the Mallya legacy," says K Ramachandran, professor at Indian School of Business.

In the conference call on Friday, Mallya refused to be drawn into any discussion on the airline saying the boards of the companies will take a call on future investments.

"There will be no cost contamination. I will do what is best for each of my businesses," he said. The bigger question arising out of the Diageo-USL deal is not the reason behind the sale, but Mallya's seeming inability to help his non-liquor businesses grow and prosper.

Time and again, his investments outside the core area of liquor and beer have run into trouble, be it Best & Crompton, UB Engineering, or, now, Kingfisher Airlines.

Critics say he lacks business acumen but that does not explain either his success in the liquor business or his talent for spotting opportunities ahead of others.

He once stood outside Bangalore city colleges asking students what they wanted in a beer in order to convince his father about the need to change the marketing and brand image of Kingfisher beer, then a 25-year-old brand.

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