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Groggy mess

21 April 2017 By Una Galani

Heineken has trouble brewing in India. The Dutch drinks group is the largest investor in the country’s biggest beer-maker, United Breweries. But an embarrassing shareholder agreement with Vijay Mallya, the disgraced tycoon arrested this week in London, leaves Heineken technically bound to accept him as chairman of the $3 billion group. Despite that, Heineken should lead a charge to sack the man once known as the King of Good Times.

India’s stock market regulator has already banned Mallya from the capital markets, saying he diverted funds from another company. New Delhi is seeking the tycoon’s extradition from Britain amid accusations of fraud. And London police have arrested him at India’s request. Yet Mallya, who is on bail and denies all the charges, continues to remain the absent chairman of United Breweries.

The Indian company’s board did ask Mallya to step down in February, but Heineken’s own chief executive, Jean-Francois van Boxmeer, later admitted it was Mallya’s choice and that removing him was not the will of the board. Heineken has a longstanding agreement to accept Mallya or his representative as chairman of United Breweries for as long as he is a shareholder. Mallya and his associates still own roughly 30 percent of the company, compared to Heineken’s near 44 percent.

Heineken has some options. British spirits group Diageo last year paid Mallya $40 million to extract itself from a similar set-up at United Spirits. Given the subsequent controversy around that deal, and Mallya’s arrest, it would be hard for Heineken to do the same. But leaving Mallya in place is bad too. Heineken would not allow someone with the tycoon’s recent record to be its own chairman, and should hold its Indian affiliate to the same standard.

Ultimately, Mallya is a distraction and hurts the company’s reputation. Heineken should get rid of him, even if it violates the terms of the shareholder agreement, and appoint someone who can add real value. Mallya is in any case out of the country. There is a good chance that courts would find in its favour if Mallya contested the move. Depose the King of Good Times.

 

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