* Dalmore would increase list of suitors, price - sources
* Sale seen fetching around 450 million pounds
* Low-end whiskies harder to sell - sources
By Martinne Geller and Anjuli Davies
LONDON, Dec 13 India's United Spirits
could attract more buyers for its Whyte & Mackay Scotch whisky
business and tip the price over the expected 450 million pounds
($735 million) if it included the single malt Dalmore, sources
familiar with the matter say.
A sale of most of Whyte & Mackay was offered last month by
Diageo to appease UK regulators concerned its purchase
of a controlling stake in Whyte & Mackay's owner, United
Spirits, would hurt competition in the world's No. 3 Scotch
market behind France and the United States.
Whyte & Mackay has about 7 percent of Britain's market for
blended Scotch whisky, which combines whiskies often made from
various grains. It also supplies retailers for own-brand
whiskies that account for 18 percent of a market worth $1.74
billion a year, according to researchers IWSR.
Diageo, which already controls more than 20 percent of the
blended market, has offered to sell the large grain distillery
at Invergordon, which accounts for the bulk of the blended
Scotch Whyte & Mackay sells, as well as the smaller malt
distilleries Fetercairn and Jura.
Diageo wants to keep the remaining small malt distilleries,
Tamnavulin and Dalmore, which it says supply United Spirits and
international markets. Sources say high-end Dalmore, known for
its stag's head logo, is the jewel in the crown.
"I think if Dalmore's in, there's a very long list of
buyers," said one source, referring to private equity firms,
often attracted to consumer brands' cash flows, and rivals such
as Pernod Ricard, Remy Cointreau and Campari
. "If Dalmore's out, it's a bit narrower."
Without Dalmore, which used to hold the record for highest
price paid for a rare bottle, sources say Whyte & Mackay might
still appeal to Beam Inc or Bacardi, as a source of
supply for the Teacher's or Dewar's brands, respectively.
"If you have a view that demand for whisky in 20 years time
will be much higher than people have forecast ... bulk can be
interesting," the source added.
Still, some suitors are hesitant about the potential of
lower-priced whiskies given the worldwide trend of consumers
choosing more premium tipples. The owners of the relatively
cheap Loch Lomond Scotch have been looking for a buyer for some
time, said two sources familiar with the matter.
Loch Lomond and Whyte & Mackay were not available to
comment. Diageo referred to its previous statement that it was
working with UK regulator, the Office of Fair Trading (OFT).
When it comes to trophy assets, deal multiples can be
dizzying. Pernod Ricard paid 21 times earnings before interest,
tax, depreciation and amortisation (EBITDA) for the maker of
Absolut vodka in 2008. But Bernstein Research analyst Trevor
Stirling said that was unlikely here.
"Because most of Whyte & Mackay's business is still
supplying product for other people's brands, we would expect a
multiple much closer to the 10.4 times (EBITDA) which Pernod
Ricard paid for Allied Domecq" in 2005, Stirling said.
Based on Whyte & Mackay's 2013 EBITDA of 45 million pounds,
he expects a deal value in the area of 450 million pounds.
One source said that if Dalmore were included, any buyer
would likely pay a higher multiple, but declined to be more
specific due to not having seen the financials. A multiple of 15
would yield a price of 675 million pounds ($1.1 billion).
Any buyer must be approved by the OFT.
Two sources said large private equity firms could use it as
a platform to buy more spirits brands, but that on its own,
Whyte & Mackay's size was more suited for mid-sized firms.
Players with a taste for booze include TPG, which sold
Diageo a Turkish raki maker in 2011; CVC Capital, which sold
brewer Starbev to Molson Coors in 2012; and Lion
Capital, which sold Russian Alcohol Group to Central European
Distribution Corp in 2009.
There is also KKR, which bought South Korea's
Oriental Brewery in 2009 and Oaktree Capital, which took
Stock Spirits public in October but remains its top
owner. Sources also say investors from emerging markets such as
China and Russia may take a look but note that a formal process
has not yet started so no parties are looking officially.
Scotch, which must be made in Scotland and aged for at least
three years, is the world's most popular whisky, with nearly $30
billion a year in sales, according to IWSR. About 13 percent is
malt whisky made from malted barley toasted over peat fire for a
smoky taste. Leading "single malts" are Glenfiddich and The
Glenlivet. But most of the market is blended Scotch.
One party already thirsting for a deal is Whyte & Mackay's
former CEO Vivian Imerman, once dubbed "the Man from Del Monte"
for his role in turning around the U.S. fruit company.
Imerman's investment firm Vasari said last month it would be
keen to buy back the Whyte & Mackay assets, which Imerman sold
to Vijay Mallya's United Spirits in 2007 for 595 million pounds,
or about 18 times EBITDA at the time, according to Bernstein.
United Spirits will run the sale process and is currently
interviewing banks to advise on it, said the sources,
speculating that a formal process will kick off in January.