Dutch beer giant Heineken appoints JM Financial to help increase stake in United Breweries.

Industry:    2016-03-15

Dutch beer giant Heineken has appointed investment bank JM Financial to help increase its stake and control in United Breweries in yet another sign that beleaguered liquor baron Vijay Mallya’s hold over the last big company of his once flourishing business empire is under threat. Mumbai-based JM, which successfully helped Diageo buy out United Spirits in 2013 as one of the key buy-side advisers, is now back advising Heineken. Its role will be crucial if the Dutch firm is to buy the remaining stake in UB it needs for majority control. The Dutch brewer is already the largest shareholder in United Breweries, maker of Kingfisher beer, with a 42.38% stake. It has been keen to take it beyond 50% either by buying directly from liquor baron Vijay Mallya or his creditors. Mallya, his family members and associate companies together own 32.89% of the company and 47.68% of that is pledged, according to data sourced from BSE till December 31, 2015. Mallya directly owns 8% in UB but 98.11% of that is pledged. UB’s current market cap is Rs 20,899 crore. The market value of the pledged shares is Rs 3,217 crore at Monday’s closing price of Rs 790.45 apiece. As the heat on Mallya’s business empire rises, and he faces lengthy questioning by the country’s investigative agencies, Heineken would be keen to mop up pledged shares that are held with banks and financial institutions as a guarantee for the Kingfisher airline loans. Over the last one year, the creditors have been periodically exercising their rights and selling these shares in the open market to recover dues from the erstwhile liquor baron and Heineken has used those opportunities to mop them up. But with JM Financial on board, Heineken will negotiate directly with lenders as they seek to proactively cash them, said three sources aware of the matter. In 2009, Heineken and Mallya unveiled a partnership with both controlling 37.5% stake each. Both had signed a “standstill agreement” that ensured equal shareholding and joint management. Both sides also had equal board representation with Heineken getting the post of chief financial officer.

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