Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Diageo offers divestment remedy to resolve UK concerns over acquisition of United Spirits, (Nov 26, 2013)

By Tobias J. Gillett, J.D., LL.M.

The United Kingdom Office of Fair Trading (OFT) is currently considering an offer from Diageo plc to divest the Whyte & Mackay business it obtained through its completed acquisition of United Spirits Limited, to resolve OFT concerns about the acquisition’s potential impact on the supply blended whisky to retailers, the OFT announced yesterday.

Diageo and United Spirits both distribute alcoholic beverages in the United Kingdom and around the world. In the United Kingdom, United Spirits’ subsidiary Whyte and Mackay primarily distributes whisky, but also supplies certain other spirits, including vodka. Retailers expressed concern to the OFT regarding possible price increases occurring in the UK as a result of transaction.

Following an investigation, the OFT concluded that Diageo’s branded Bell’s whisky and Whyte and Mackay’s own label whisky competed substantially in the retail sector, and found the merger could lead to a substantial lessening of competition in the supply of blended whisky to retailers. The OFT also found that other manufacturers did not have sufficient capacity to offset that loss of competition, and could not achieve it quickly. However, the OFT did not conclude that the transaction would lead to a substantial lessening of competition in the supply of bottled blended whisky to bars, pubs and restaurants; in the supply of malt whisky; in the supply of vodka; or in the bulk supply of whisky.

Under the terms of the offer, Diageo would divest the entirety of the Whyte & Mackay business with the exception of (1) the Dalmore and Tamnavulin malt distilleries (including assets used to run those distilleries), (2) the Dalmore and Tamnavulin brands and maturing inventory from these distilleries as well as associated management and operations, (3) the management and staff for each distillery as well as any supply arrangements specifically associated with either production at the sites, and (4) sale of product from the sites. The divestment would encompass all of Whyte & Mackay’s blended Scotch whisky brands, including Whyte & Mackay as well as Whyte & Mackay’s private label operations. Whyte & Mackay would retain its malt distilleries at Jura and Fettercairn and its Invergordon grain distillery.

“These companies are two of the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers,” said Chris Walters, OFT Chief Economist and Decision Maker in the present case. “Our investigation considered a wide range of evidence and we concluded that the likely loss of competition could give rise to higher prices for retailers, and ultimately consumers. We are now considering Diageo’s offer to sell the bulk of the Whyte & Mackay business with the exception of two malt distilleries, to address our concerns.”

The OFT’s duty to refer the transaction to the Competition Commission is suspended while it considers Diageo’s offer.

Companies: Diageo plc; United Spirits Ltd.

News: Antitrust