Spirited Overtures

CALCUTTA'S corporate grapevine is abuzz with rumours that Manu Chhabria may be selling his troubled crown jewel, Shaw Wallace. The buyer is reportedly the Canadian liquor and entertainment giant, Seagram. The company made a bid for Shaw Wallace in 1984-85 but Chhabria grabbed the company by offering a higher price. Although Chhabria denied any intention of selling Shaw Wallace, a source close to Seagram, while denying that any deal had been struck, is unwilling to say if such a deal would not be struck in the future.

According to sources in the liquor industry, it would be good business strategy for Seagram to acquire Shaw Wallace. Seagram is the only TNC bottling scotch in India without a joint venture with an Indian liquor major; Shaw Wallace is similarly unattached. The liquor TNCs entered India expecting to wean high-income customers away from the smuggled scotch market—the guesstimate is that over 60 per cent of it is adulterated—to the legalised imported scotch bottled in India. But the game plan failed as the TNCs, marketing mainly their lesser-known brands, failed to woo the premium Indian consumer, who continued to favour well-known smuggled brands. The TNCs, therefore, are now targeting the Indian-made whisky segment which is growing at about 15 per cent every year. But the problem is that TNCs do not have captive production units and if they enter the Indian whisky sector in a big way, they will be treading on their Indian partners' toes.

Acquiring Shaw Wallace would provide Seagram not only with captive production units in the country, but also a first-class marketing and dealer network. Seagram will also own well-established brands like Antiquity, Royal Challenge and Director's Special. Sources estimate Shaw Wallace's debt at about $500 million. This could be discounted while arriving at the sale price and Sea-gram can easily raise the required working capital once it acquires Shaw Wallace. Sources also point out that the Enforcement Directorate's charges are against specific individuals and not against the company and hence will not affect the new buyer.

What might affect a prospective buyer is the dispute over Chhab-ria's acquisition of Shaw Wallace. Chhabria acquired 40 per cent of Shaw Wallace's equity in 1984-85 by buying the UK-based RG Shaw and its three subsidiaries which had 40 per cent stake. The buyout was effected through a holding company called Caresco. At the time of the takeover, it was rumoured that Vijay Mallya of the UB group, the principal rival of Shaw Wallace, was also involved in the purchase and that Chhabria later refused to pay his dues. Mallya, reportedly, couldn't press his claim for fear of being charged of FERA violation.

Meanwhile, two Hong Kong-based companies, Alexina Investments and Sovereign Nominees, have sued Keysberg, a company reportedly controlled by Chhabria, for breach of faith over the shareholding pattern of Shaw Wallace. The companies have alleged that Keysberg and another Hong Kong-based company, Amarante (reportedly controlled by Mallya), jointly acquired the entire Shaw Wallace share capital of RG Shaw as equal partners. If this claim is established, Keysb-erg and Chhabria's holding will be reduced to 20 per cent in Shaw Wallace. The suit has been admitted in the Calcutta High Court which has ordered RG Shaw not to sell any of its Shaw Wallace shares without its permission.

That, however, is a small hurdle for the prospective buyer, which can be overcome by acquiring RG Shaw and its subsidiaries and thereby its Shaw Wallace holdings. Also, as this would be an offshore purchase, it would be outside the purview of the Indian takeover code and would not require the RBI's permission. Sources also point out that as both Chhabria and Mallya are facing a cash crunch, they would welcome the buyout. The Indian Government too would welcome the acquisition of Shaw Wallace by a well-known TNC as it would make their dealings with Chhabria easier. The latter is unlikely to return to India in the future for fear of arrest and is finding it increasingly difficult to run operations from Dubai.