Might Mallya snap up Cobra’s Indian operation?

Is the flamboyant Indian businessman, VJ Mallya, about to take a bigger hold of India’s drinks sector? Rumour has it that his UB Group, the country’s largest drinks producer, is about to bid for the Indian arm of Cobra beer.

Cobra originally built its business by being in every UK curry house but now restaurants account for only about 40% of its UK sales while the rest go through pubs and supermarkets. It has about 1% of the Indian beer market.

Lord, Bilimoria, who owns about two thirds of Cobra, recently held talks with Diageo about the world’s biggest drinks company taking a minority stake in Cobra, but they fell through. Now it is suggested that Bilimoria, who is looking to raise £185m for the group, is willing to talk about splitting the UK and Indian arms and is sending details to all the big drinks groups.

Mallya is in talks with Diageo about selling it a stake in his United Spirits empire, which would give Diageo a strategic distribution advantage in the Indian market and provide wider global distribution for United’s brands. Adding Cobra in India to his dominant Indian beer brand, Kingfisher, would be very appealing. Molson Coors might be interested in the UK business but trade rumours suggest that SAB Miller is considering a full takeover of Cobra because it is the second largest brewer in the burgeoning Indian beer market, where it owns the Foster’s brand.

Meanwhile, companies will now have to think hard about how to exploit the growth potential of the Chinese market. InBev’s $52 billion takeover of Anheuser-Busch has been used by the authorities in Bejing to put down a marker on competition policy in the world’s most populace market. While the Ministry of Commerce said the takeover would not harm competition, it also ruled that InBev will now not be allowed to acquire further interests in four key companies in the Chinese beer market. For instance, it cannot increase Anheuser-Busch’s 27% stake in Tsingtao Brewery or its own 28.5 holding in Zhujiang Brewery.

From now on, before targeting one company for takeover, a potential bidder must consider what effect a successful deal might have on preventing any other consolidation in the future. Already this has thrown a cloud over Coca-Cola’s $2.4 billion offer for Huiyuan Juice Group in what would be the biggest takeover in China.

 

Finance on Friday 12/12/08