India: Scottish & Newcastle combines its Indian beer operations with United Breweries to create the leading Indian brewer. Scottish & Newcastle (“S&N”) announced on December 19 that it has reached an agreement to invest in United Breweries (“UB”), the number one Indian brewer, to form a combination of both companies’ Indian brewing operations. S&N to take equity stake of up to 37.5% in United Breweries and exercise joint management control with a group of shareholders led by Dr Vijay Mallya, the UBL Chairman. The parties’ combined brewing interests will have a market share of over 50%. Combination will have national reach in a market growing at 9% per annum with a leading position in all major state markets.

Creation of the best portfolio of national and regional brands including Kingfisher, the number one Indian brand. One in three beers sold in India is a Kingfisher. At the same time S&N and Dr Vijay Mallya will work together to develop the Kingfisher brand in territories where S&N has a strong distribution network.

Commenting on the agreement Tony Froggatt, Chief Executive of S&N said: ‘The combination of S&N and United Breweries will further strengthen the strong leadership position that UBL holds in a fast growing market of enormous long term potential. The agreement is a natural development of our very successful joint venture with United Breweries. It also represents a significant expansion of S&N’s presence in India, demonstrating our long term commitment to investing in this exciting economy. ’

Commenting on the agreement Dr Vijay Mallya said: ‘This agreement continues the development of the strategic partnership between S&N and UB, strengthening UBL’s position in the Indian market. The Kingfisher beer brand will also receive a significant boost in overseas markets through S&N’s wide distribution network.’

S&N will take an equity interest in United Breweries of between 33.0% and 37.5%, as well as retaining its 40% interest in Millennium Alcobev (“MABL”), its existing joint venture with United Breweries, formed in May 2003.

The controlling group of shareholders in United Breweries led by Dr Vijay Mallya (“VJM Group”) have signed an irrevocable agreement to support the transaction which will require approval by United Breweries shareholders and Indian regulatory authorities. In addition the UB board have passed a resolution in support of the transaction.

S&N will receive new ordinary equity of 17.5% from United Breweries and make an open market offer for up to a maximum of 20% of the ordinary equity of United Breweries at 575 Rupees per share, a premium of 15% on the current market price. At the same time the VJM Group will reduce their shareholding in United Breweries to the extent necessary such that it is the same as S&N’s equity stake.

S&N will invest up to an incremental $171m cash in this transaction. This includes $54m in redeemable preference shares in United Breweries. Upon completion, which is anticipated in the middle of 2005, S&N and the VJM Group will each appoint 2 directors to the board of United Breweries and will jointly appoint three independent non-executive directors.

The combined businesses will have access to all key beer markets in India and a powerful brand portfolio including the number one brand in India, Kingfisher (which has a 33% share of the Indian market) and will implement a unified marketing strategy, enhance production efficiency and reduce costs.

India has a population of over 1.1 billion people, and is experiencing a sustained period of strong economic growth (GDP growth in 2004 is forecast at over 9% in 2004). The beer market, at c.7 million hectolitres, currently represents only 10% of alcohol sales (with spirits making up nearly 90%), but is growing quickly.

India’a beer consumption has increased on average by 9% over the last five years, and has good prospects for continued growth driven by strong economic growth, favourable demographics (56% of the population is under 25), government deregulation and the growing popularity of beer over other forms of alcohol. Following this announcement the two leading brewers will now represent over 80% of total sales.

Millennium Alcobev (“MABL”) has grown quickly since its formation in May 2003 and now has 11% share of the Indian market. It is a joint venture between United Breweries (40%), S&N (40%), and local management (20%).

United Breweries, listed on the Mumbai stock exchange, is the market leader in India with a 39% market share and is controlled by a shareholder group led by Dr Vijay Mallya.

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