Diageo announced it had entered into an agreement to acquire a 50 per cent interest in Vijay Mallya's United National Breweries (UNB), which runs the UB Group's traditional sorghum beer business in South Africa.
The other 50 per cent will be held by a company affiliated to Mallya. Diageo will acquire its 50 per cent interest for $36 million (Euro 23 million), subject to customary adjustments. The transaction is conditional on, among other things, consent from the South African competitive authority and is expected to be completed in the first half of this year.
This move by Diageo is subsequent to a memorandum of understanding (MoU) announced early November, in line with which they would form a 50:50 joint venture, which would own UNB's traditional sorghum beer business in South Africa.
UNB is among the leading manufacturers of African sorghum beer ("Umqombothi") in South Africa. Umqombothi is the core business of UNB.
It produces and distributes Umqombothi from six breweries and numerous distribution depots dotting South Africa.
Mallya had acquired UNB in 1996 through a global tender and has been involved in taking the company out of financial difficulties.
It has a rich and varied history and started out as scattered breweries under the control of various development boards, municipalities and management boards.
Decades earlier, various breweries that brewed for the local consumers in the municipalities and development areas were amalgamated by directive of the government.
According to United National Breweries, this later gave rise to one of the first economic empowerment companies in South Africa under the name of National Sorghum Breweries (NSB). Although the formation of this group was a huge step forward for the traditional beer industry in South Africa, the transition was not seamless and NSB ran into financial trouble. A global tender was advertised for investment and management assistance and the UB Group of India became stakeholders in 1996. It also managed to take over the business of the traditional beer subsidiary of South African Breweries Limited (SAB), TBI in 2000.
"The nature of traditional beer is that it is an actively fermenting product with a very limited shelf life that necessitates on-the-ground and hands-on management, requiring a decentralised operational base. UNB operates in this decentralised fashion with centralised strategic, financial and corporate controls," the company added.
Diageo's move comes even as it and Mallya are engaged in protracted discussions with Indian regulators to get the nod for a $2.1 billion deal in which Diageo may acquire a 53 per cent stake in United Spirits.