December 14, 2002
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Money > Special December 14, 2002 |
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Another battle of the bottleBhupesh Bhandari and Parul Gupta It was a small triumph for liquor giant Shaw Wallace. On December 11, its candidate Deepak Chaudhuri edged past the competition and landed in the hot seat as president of the All India Brewer's Association.
A day later, on December 12, speaking at a function organised by the Federation of Indian Chambers of Commerce and Industry in New Delhi, UB Group chairman Vijay Mallya proudly announced that his group had been identified as the world's fifth largest liquor conglomerate by Impact International and that its global sales were just two million cases short of Bacardi Martini. "Considering the wide differential in the growth rates of the two companies, I can assure you that the UB Group will become bigger than Bacardi Worldwide within the next 12-24 months," he said before delivering the punchline: "There is no other liquor company in India which can even claim to be in a world list in the same category." It's slugfest, folks. After more than a decade of relative calm (barring the registration of domain names like manuchhabria.net, manuchhabria.com, shawwallaceindia.net, shawwallaceindia.com, by a UB company in the US a few years ago), arch rivals Vijay Mallya-promoted UB Group and the Chhabria family-controlled Shaw Wallace are once again engaged in a no holds barred fight. The only difference this time is that Manohar Rajaram "Manu" Chhabria, who died in April , is not there to lead the Shaw Wallace charge. In April when Manu died, it almost looked as if peace had broken out between India's top liquor companies. Last month it became clear that the battlelines were being drawn once again. In November, UB Group company, McDowell, exercising its rights as an "aggrieved" Shaw Wallace shareholder, moved the Mumbai High Court seeking to restrain the company from reorganising its business, disposing off its assets or entering into a joint venture. "We feel that there has been an utter lack of transparency in SWC's restructuring exercise in which most assets except brands, were transferred into marketing and manufacturing subsidiaries under the management control of the Jumbo Group, which is the Dubai-based business of Chhabria. Our contention is that these assets were transferred to subsidiaries at a hefty discount thereby allowing the promoters of Jumbo to pick up equity at reduced prices. It is really surprising that no other shareholder thought it fit to bring up this issue," a UB Group source said. However, the court turned down the McDowell demand for an ad-interim order in its favour. Shaw Wallace is now studying the possibility of petitioning the court to dismiss the McDowell plea. Executives at Shaw Wallace say that McDowell bought 5,000 of its shares recently to become a shareholder. And it isn't the first time that the UB Group used this ploy. In 1999, it picked up 5,100 Shaw Wallace shares and triggered another legal battle between the two groups. The matter ended up in the Calcutta high court, which stayed the share transfer. At that time, Mallya also offered Rs 250 crore (Rs 2.5 billion) to Shaw Wallace for its flagship brands like Royal Challenge, Director's Special and Haywards. The money would have been used to pay off Shaw Wallace creditors who had initiated legal proceedings to recover their dues. On another front a legal suit - first filed in 1992 - is still underway in the Hong Kong courts and Mallya is ensuring that it is being pursued energetically once again. In the suit Mallya claims that he financed Manu Chhabria's takeover of Shaw Wallace in 1985 and that he should therefore be given his share of the company. Of course, Shaw Wallace has denied that Mallya bankrolled the acquisition. The matter is still pending with the courts. Meanwhile, Shaw Wallace has also called out its lawyers on yet another front. It accuses the UB Group of writing to global beer majors, warning them against tying up with Shaw Wallace. The Shaw Wallace solicitors Susan Liang & Co., have served a legal notice on UB asking it to desist from writing such letters to global beer majors like Heineken, South African Breweries (SABMiller now), Carlsberg and Interbrew. When contacted, a UB Group spokesperson denied that such a letter existed or that it had received a legal notice on the subject from Shaw Wallace. However, one of the global majors privately confirmed receiving such a letter. Out of these four international companies, Shaw Wallace is known to be in talks with SABMiller to offload a 49 per cent stake in Shaw Wallace Beer, the de-merged brewing arm of Shaw Wallace. But why would Mallya try to block an alliance between Shaw Wallace and SABMiller? A possible answer is the changing face of the Indian beer industry. Not so long ago, UB straddled the country's beer market like a colossus with a market share in excess of 50 per cent. However, Shaw Wallace has been catching up in recent years with brands like Haywards and Royal Challenge. It now claims a 28 per cent maketshare against UB's 35 per cent. Then, take a look at SABMiller the newest big player in the Indian market. SABMiller India managing director Richard Rushton says the company has garnered an 8 per cent market share for itself. If Shaw Wallace and SABMiller join hands, their combined marketshare will eclipse that of UB. It is common knowledge that UB was the first to kick off talks with SABMiller for a joint venture. But the negotiations fell through. The talk doing the rounds at that time was that SABMiller did not like UB making a foray into South Africa. Don't think that UB has been making all the moves in the battle of the booze barons. A year ago UB scored a coup by spiriting away A K M A Shamsuddin, a veteran of 35 years in Shaw Wallace. Shamsuddin became one of the four chief operating officers of the UB Spirits Division. A few weeks ago Shaw Wallace scored a counter-coup by luring Shamsuddin back to its camp. The war of top-level poaching between the rivals dates back to October 1999 when the then SWC managing director, Ravi Jain, left the company to float a joint venture company with Mallya called Millenium Alcobev to tap the growing beer market. Jain, who had worked with UB in the past, had joined SWC in 1993. His last three years in the company (1996-99) were as its managing director. On his part, Mallya can claim a victory of sorts by beating others including Shaw Wallace in the race for UDV's Indian brands like Gilbey's Green Label. Earlier this week, Mallya announced in Mumbai that McDowell & Co was acquiring an 85 per cent stake in Triumph Distillers & Vintners from financial investors for Rs 60 crore (Rs 600 million). Triumph was floated by ex-UDV chief Deepak Roy and it acquired the brands when Diageo Plc, UDV's parent, decided to focus on international brands in all markets and sell off local brands. McDowell also has the option to buy the 15 per cent stake held by Roy in Triumph after two years. Sources in Shaw Wallace are quick to point out that the company lost interest in the UDV brands once it came to light that UB had registered a brand called McDowell Green Label. "It could have caused a lot of confusion in the marketplace, had anybody else come to own Gilbey's Green Label," say Shaw Wallace sources. Sour grapes? Perhaps. But round one goes to Mallya. Divided daughters The Chhabria family is used to fighting battles with Vijay Mallya. But this time it is saddled with a few internal problems of its own. Bhavika Godhwani, the little-known eldest daughter of Vidya Manohar Chhabria, the Jumbo Group chairperson, has demanded a four-way split in the $2 billion Jumbo group. The business, she has demanded, should be divided equally between Chhabria and her three daughters - Bhavika, Komal Chhabria Wazir and Kiran Chhabria.
Sources close to Bhavika say that her angst is directed at 29-year-old Komal who has emerged as the public face of the Jumbo Group after her father's death in April. While Bhavika is on the board of only one Jumbo company in India - Hindustan Dorr-Oliver -, Komal represents the family in all the Indian ventures including Shaw Wallace, Dunlop India, Falcon Tyres, Mather & Platt, Gordon Woodroffe as well as Hindustan Dorr-Oliver. It is also worth noting that Manoj Godhwani, Bhavika's husband, was on the Dunlop India board but stepped down subsequently. (In fact, the Chhabria family has decided to keep its sons-in-law out of the family businesses. Thus, Komal's husband, Rajiv Wazir, runs his own advertising agency). The family is now trying to work out how much Manu's estate is worth so that the assets can be divided. It would be a first for Indian business if the three daughters end up battling each other in right earnest for their father's empire. Racing into trouble Vijay Mallya is no stranger to the games bureaucrats play. Earlier this year the Enforcement Directorate dropped Fera violation charges against Mallya and UB. Now, the ED has filed a revision petition against the earlier order with the Appellate Tribunal for Foreign Exchange stating that the order acquitting UB and Mallya of Fera violations should be reviewed. The charges against United Breweries and Mallya were dropped by an order dated January 10, 2002, passed by special director K R Bhargava stating that the allegations were not sustainable. A new petition has been filed under Section 19 and 19 (6) of the Foreign Exchange Management Act (Fema), 1999 with a prayer to examine the legality and correctness of the order. Says a UB Group spokesperson: "It is public knowledge that this is a routine administrative procedure followed by the Enforcement Directorate, whenever the Adjudication officer decides against the Directorate." UB and Mallya were issued a show-cause notice on March 13, 2001 over an agreement between Benetton Formula Ltd, UK and Mallya for using the brand name 'Kingfisher' on the racing cars during the Formula-1 championships for three years 1996, 1997 and 1998. The agreement, signed on December 1, 1995, stated that the sponsorship fee payable by UB Group to Benetton for the three years was $3 million, $5 million and $7 million respectively. The ED claims that Benetton used the 'Kingfisher' logo during races in 1996 without any general or special exemption or permission from the Indian Government or the Reserve Bank of India for remittance of the above mentioned fee. Commenting on the development, Mallya said: "Kingfisher is sold in 52 countries today but when I wanted to advertise the brand on an international platform, the Indian government agencies - the Enforcement Directorate - decided to slap a case against me." Mallya also lashed out at the Government. "Government regulations in India are keeping investors away and are also discouraging Indians from investing elsewhere. Even if I want to invest in any other part of the world, the Indian laws, procedures and bureaucracy make it a headache. "Opportunities just come and go - they don't wait. If we can't take advantage of them, they are not going to wait for us. But with the current regulations in India, it is not possible to respond to those opportunities immediately." Powered by ALSO READ:
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At Shaw Wallace House there was jubilation that Chaudhuri, who heads the company's brewery division, had made it to the top job in the industry association. Why? Because it's the first time that a Shaw Wallace man has pipped the UB candidate to the post in a very long time.
On the day Manu died Mallya is known to have called Vidya Manohar Chhabria, Manu Chhabria's wife, from San Francisco and spoken to her for almost 45 minutes. He had even dropped by at Mumbai's Jaslok hospital just before Manu died.
Bhavika has always kept a low profile and stayed out of the business papers. Her father, the late Manu Chhabria, when he was alive, would often say that Bhavika was the least likely of his three daughters to join the family business. Kiran, the youngest, has just joined the family business in Dubai (a talented writer, she is helping out with group communications). Then, why the sudden flare up in the family?
