CASE EXAMPLE Drinking Partners - India's United Breweries Holdings Ltd By 2015, one of India's most powerful and dynamic spirits and 50 per cent of its beer. The group was organ- conglomerates, United Breweries Holdings Lid (UBHL), ised into four main businesses: brewing, spirits, airlines was on the brink of disintegration. In the preceding three and chemicals. External shareholders had substantial years, it had been forced to sell down its ownership stakes ownership stakes in each of these businesses, reducing in India's largest brewery (United Breweries), India's large the capital obligations on UBHL. However, Mallya guar- est spirits company (United Spirits) and a substantial anteed effective control of each business by ensuring that chemicals and fertiliser company, MCF. UBHL's chairman in each case UBHL was the largest shareholder, if not and dominant shareholder, Vijay Mallya, was struggling the majority owner. Mallya's overall control of the par- to retain the last vestiges of control. His key brewing and ent company UBHL was assured by dominance of the spirits businesses now depended on partnerships with two voting A class shares, while Indian and foreign insti- Western multinationals, Heineken and Diageo. Relations tutional shareholders held the overwhelming majority with the first were amiable; with the second, they were of non-voting B class shares. Non-executive directors bitterly acrimonious. included Mallya's son, 'Sid' Mallya, pursuing a mod- elling career in the USA, the British businesswoman King of the Good Times Dajlit Mahal, an associate of Mallya's for 22 years, and V K Rekhi, who had been associated with UBHL for nearly Vijay Mallya had inherited control of the UBHL conglom- 40 years, and was a former president of United Spirits. erate at the age of 28, upon the death of his father in Though a shrewd businessman, Mallya was extravagant 1983. He had divested non-core businesses and reof- in his personal life. Playing on the name of his most prom- ganised the tangle of remaining subsidiaries into a clear inent beer brand, Kingfisher, he often described himself divisional structure based on coherent business areas. as "King of the Good Times. He surrounded himself with UBHL grew rapidly and by 2007 Vijay Mallya ranked 664 beautiful models and actresses, and the annual Kingfisher on the Forbes global list of billionaires, with an estimated Calendar became famous in India for its photographs of fortune of $1.5bn (about (950m or El.2bn). scantily-clad women. He owned several expensive yachts As it entered the second decade of the twenty-first and a fleet of luxury vintage cars. In 2008, Mallya and century, UBHL was selling about 60 per cent of India's a business partner bought a Formula One racing team, UBHL (51.5%) United Breweries United Spirits Kingfisher Airlines MCF (2011: 37.5%; (2011: 28.0%: (2011: 50.2; (201 1: 30.4%; 2015: 33.0%) 2015: 13.2%) 2015: insolvent) 2015: 22.0%) As of 2015, Vijay Mallya and associates controlled 51.5 per cent of UBHL. Shares in each of the principal businesses owned directly by UBHL or by Mallya and associates indicated in brackets, respectively for 2011 and 2015. Figure 1 United Breweries Holdings Ltd, principal businesses, 2011 159CHAPTER 5 STAKEHOLDERS AND GOVERNANCE renamed Force India. A similar patriotic theme under- whisky brands, all genuine Scotch. United Spirits became pinned his acquisition of the sword of the great Indian the third-largest spirits producer in the world, behind Per- leader, Tipu Sultan, captured by the British in the eight- nod Ricard and Diageo. eenth century, and his generous assistance with the repa- But Mallya had paid more for Whyte & Mackay than he triation of some of the few surviving artefacts owned by could really afford: the United Spirits business was left Mahatma Gandhi, India's campaigner for Independence. with heavy debts. In the economic downturn of 2009 Mallya's personal popularity was reflected in his election Whyte & Mackay was forced to cut about 15 per cent to the Upper House of India's federal parliament. But of its jobs. Subsequent years saw difficulties with the it was Mallya's extravagance in the business realm that organisation of its American export business. At the same finally pushed UBHL to disaster. time, there was tension over United Spirits' record of try- ing to sell cheap Indian spirits into European markets. A Internationalisation and diversification 2013 partnership with Diageo, the world's largest spirits producer, was leading to regulatory concerns about mar- The first of two fatally extravagant moves had been Mat- ket power. Needing a cash injection, in 2014 UBHL sold ya's diversification into airlines. To celebrate his son's Whyte & Mackay to the Philippines drinks group, Alliance, 18th birthday, Mallya launched Kingfisher Airlines in for just $430m. 2005, with 50.2 per cent of the ownership in his hands It might have been a good opportunity: the Indian air mar ket was growing fast with increasing economic growth. Foreign rescuers? Mallya gave the new airline a glitzy launch. Promoting The sale of Whyte & Mackay was just one of a series its superior food and pretty female staff, Mallya declared of disposals. During 2014, Mallya sold key stakes in his that the Kingfisher Airline would have neither business chemical company MCF, leaving him with just 22 per class nor economy class, but its own 'K class' - a rather cent ownership. The most important deals however were pricey compromise. In 2008, Kingfisher paid over the with Diageo, which by 2014 had acquired the majority of odds to buy India's pioneering low-cost carrier, Deccan shares in United Spirits, and with longstanding partner Airlines. The merged airline boasted 100-plus aircraft, Heineken, which by 2015 had acquired 43 per cent of 300 daily flights, over 7,000 employees and a domes- United Breweries, leaving UBHL with just 33 per cent. tic market share of about 30 per cent. With Deccan's The Dutch beer company Heineken had first entered track-record, Kingfisher was able to launch international into partnership with United Breweries in 2009, acquiring services as well, with an order for the new Airbus A380 a 37.7 per cent stake. Heineken saw a long-term growth superjumbo jet. Mallya, sporting long hair and a beard, market in India, with 700 million people under 30 years did not discourage comparisons with another flamboyant of age and a shift towards premium beers such as Heine- airline boss, Sir Richard Branson of Virgin. ken's. United Breweries could give Heineken excellent dis- Unfortunately, domestic deregulation brought a tribution channels and deep local knowledge, while the surge of new competitors in the Indian airline market. Dutch brought new brands and expertise in marketing At the same time, fuel prices rose and crowded airports and manufacturing. Heineken is the only global brewing demanded higher landing fees. Kingfisher never made a company in the world that is still family-owned. A senior profit in its whole existence. After failure to pay airports, United Breweries manager commented in 2015 that the fuel suppliers and employees, including pilots, over a relationship between the Dutch and Indian companies was period of several months, the Indian government sus- 'great' 'I think Heineken and UBL have enormous respect pended Kingfisher's licence to fly in 2012. Kingfisher's for each other. Heineken chief executive Jean-Francois total debts and losses stood at about $4.5bn. UBHL had van Boxmeer and Vijay Mallya have a great personal equa- been forced to dilute its ownership to about 12 per cent, tion. The same holds true with the Heineken family. ' In and the holding company still guaranteed $2.2bn of the 2015, Mallya attended the 61st birthday celebrations of airline's debt. major shareholder, Charlene de Carvalho-Heineken, reput The second extravagant move by Mallya was into inter edly the tenth richest woman in the world. national markets, with the 2007 acquisition of the leading Diageo, a public company based in London, had a more Scottish whisky company Whyte & Mackay for $595m. difficult relationship with UBHL. The company's original UBHL's United Spirits business needed access to genu- deal with UBHL in 2013 had been complex, designed ine Scotch whisky brands as its increasingly sophisticated to allow Mallya a considerable degree of control. Diageo Indian customers sought higher-quality spirits than those bought 19.3 per cent of United Spirits' existing shares traditionally made in India. Acquisition of Whyte & Mackay from Mallya's personal and related holdings, while United gave United Spirits control over more than 140 venerable Spirits issued new equity, amounting to 10 per cent of the 160DRINKING PARTNERS - INDIA'S UNITED BREWERIES HOLDINGS LTD 7300