The price is Whyte...& Mackay? OFT weighs up Diageo divestment offer

Whyte & Mackay (W&M) is a United Spirits subsidiary that supplies whisky, but also distributes other spirits including vodka, and the OFT said that allowing the merger in its initial form without the divestment would result in a ‘substantial lessening’ of competition on the UK blended whisky market.

Consequently, Diageo has offered to sell the bulk of W&M – with the exception of two malt distilleries in Dalmore and Tamnauvulin that primarily supply international markets – to offset OFT concerns that could see its $2bn merger with United Spirits, through a 53.4% stake purchase – referred to the UK Competition Commission.

'Diageo is interested in brands and brand development' - Analyst​

Thus, any sale will cover W&M's blended branded whisky products as well as its private label whisky operations. Namely, its Invergordon, Jura and Fettercairn distilleries, and all of the distiller's central operations.

A Diageo spokesperson said: "Diageo will be assisting the OFT with its on-going work. A further announcement will be made in due course and we are not in a position to comment further at this stage."​

Asked for his opinion on the White & Mackay sale, Shore Capital analyst Phil Carroll told BeverageDaily.com he didn't think any deal would move the needle if it did go ahead: "It sounds like they have to dispose of the UK assets but I don't think they will be to worried over that given the weighting towards private label. Diageo is interested in brands and brand development.​

"That said keeping the assets that supply United Spirits, I would imagine, would be important. Hence not selling White & Mackay in totality,"​ Carroll added.

Rivals in branded and own-label blended​

Given that both Diageo and Whyte & Mackay supply bottled blended whisky, as well as own-label blended whisky, the OFT said a number of UK retailers raised concerns about higher prices.

The OFT said its investigation found that there was substantial retail competition between Bell’s whisky, a Diageo own label and Whyte & Mackay’s own-label and branded blended whisky.

The regulator reached its decision by analysing data on consumer switching between brands, economic modelling and internal documents, and said it had considered how effectively other blended whisky manufacturers of blended whisky could compete with the merged business.

Available evidence showed did not have, and could not quickly increase, capacity to offset the loss of competition likely to result from the merger, according to the regulator.

Chris Walters, OFT chief economist and decision maker in this case, said: “These companies are two of the leading suppliers of blended bottled whisky in the UK, especially to supermarkets and other large retailers.​

“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,”​ he added.