Diageo plans to approach UK fair trade regulator

UK-based liquor company Diageo will follow up its 25.02 per cent stake acquisition in UB group company United Spirits (USL) with UK's fair trade regulator as it got control of Scotch producer Whyte & Mackay (W&M), a subsidiary of USL, acquired in 2007.

Diageo already has a substantial share of global Scotch sales and the November 2012 deal with USL, that concluded early this month, gives it access to a market share that could be in excess of the 40 per cent threshold specified by the regulator Office of Fair Trading (OFT). According to the Competition Act UK, a company with a market share of 40 per cent or more is likely to be in dominant position and abuse of such position is “unlawful.”

However, it also says, “Whilst the market share is important (a company is unlikely to be dominant if its market share is less than 40 per cent) it does not determine on its own whether a company is dominant.”

In response to a query, spokesperson for Diageo India said, “Now that we have closed the deal, we will be engaging appropriately with the OFT and anticipate filing in due course.” She however declined to comment further.

One of the options could be sale of W&M, which was also hinted by Diageo's then Chief Executive Officer Paul Walsh last November in an interview to a British website. “We do not feel that we need Whyte & Mackay as a production resource... From a brand point of view, it has an interesting position in certain markets, but also we have brands that could occupy that space,” the website just-drinks.com had quoted him as saying.
The spokesperson said that with management control of USL, Diageo will now control the strategic direction of USL.

When asked whether the aggressive buying of stake in another UB group company Mangalore Chemicals and Fertilisers will affect Diageo's plans for USL, she said, “This has no bearing on our transaction with USL.”