Scribd
Upload
82 views3 pages

Deadly Cocktail: Who, When & What Went Wrong?: Diversification Strategy

Vijay Mallya made several strategic mistakes as chairman of Kingfisher Airlines (KFA) that led to its demise, including diversifying into too many businesses without proper oversight, spending recklessly on branding and lifestyle, and losing control of the most successful businesses in his conglomerate. As KFA's debts mounted, he sold controlling stakes in flagship firm United Spirits Limited (USL) and resigned from other crown jewels to raise funds. However, his deals faced questions around corporate governance and allegations of fund diversions from USL to KFA.

Uploaded by

Shubham Panwar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
82 views3 pages

Deadly Cocktail: Who, When & What Went Wrong?: Diversification Strategy

Vijay Mallya made several strategic mistakes as chairman of Kingfisher Airlines (KFA) that led to its demise, including diversifying into too many businesses without proper oversight, spending recklessly on branding and lifestyle, and losing control of the most successful businesses in his conglomerate. As KFA's debts mounted, he sold controlling stakes in flagship firm United Spirits Limited (USL) and resigned from other crown jewels to raise funds. However, his deals faced questions around corporate governance and allegations of fund diversions from USL to KFA.

Uploaded by

Shubham Panwar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Deadly Cocktail: Who, When & What went wrong?

Learning Objectives

● Not focusing on core business.


● Reckless spending on brand image and lavish lifestyle.
● Losing Crown Jewels

Learning Outcomes

● Diversification strategy.
● Proper investment analysis.
● Poor financial planning.

Not focusing on core business.

The problem, of course, lay in acquisitive excess.Mallya reportedly entered and


exited 32 businesses since the time he took over as the chairman of the UB Group.
Except for some such as the Berger Paints and MCFL acquisitions, none of the other
diversifications paid out considerably for the UB Group, analysts said. Some
observers pointed that though Mallya had the business acumen and foresight to
identify opportunities, he lacked the diligence to follow them through. They opined
that the liquor empire built by his father was a cash cow that shielded Mallya from his
missteps in business.

As the saying goes, the quickest way to become a millionaire is for a


billionaire to invest in the airline sector.

It was when the good times seemed to last forever that Mallya made his first
strategic mistake. Deccan Aviation's Capt G.R. Gopinath, who was desperately
looking for a buyer for his airline, Air Deccan, had all but tied up with Anil Ambani for
a sell-out. Some last-minute delays eventually led to the collapse of the deal. That's
when Mallya, who kept denying that he couldn't even think of buying an airline whose
business model was different than his own, suddenly put in his bid, apparently
offering more money than the previous one to clinch the deal.

It seemed a good deal in the beginning. Mallya got Air Deccan's huge market share
and several aircraft as well, plus an immediate listing. Thrown in was another goody:
the licence to fly on international routes as Air Deccan had been in the business for
five years — a requirement by the regulator for any airline to fly overseas. But he
also acquired the losses incurred by the airline.

Through a reverse merger, Kingfisher Airlines became Air Deccan and once the
entire acquisition was completed with necessary approvals from the regulator SEBI
in place, Mallya quickly changed the airline's name back to Kingfisher Airlines in
2008.

He spun off Air Deccan's fleet into a subsidiary called Kingfisher Red. So, Kingfisher
Airlines had an economy as well as business class and flew on trunk routes including
the metros, while Red did the rounds of tier-II cities' as well as some of the bigger
cities. It was picture perfect.

It wasn't, actually. Mallya was not just into one business but several and each as
different as the other. Normally, for such diverse businesses, one would appoint a
CEO each to run it with a hands-on approach who would, in turn, report to the group
chairman.

Reckless spending on brand image and lavish lifestyle.

For one, there was the glamour, something he couldn't get enough of despite the
yachts and islands. In time, the airline became a stepping stone for the pursuit of
other adventures.

He acquired Whyte & Mackay, a Scottish bulk liquor maker amidst drama and
glamour, holding a press conference in London to announce the deal. He bought
newspapers (Asian Age was one such), fashion and movie magazines, bought and
sold a TV company and added football teams to his ever expanding empire.
Someone who was known for his distaste for politicians, he actually funded a party
and became a Rajya Sabha MP as well.

Apart from business, Mallya had other interests. He was a keen sportsman and a
passionate aviator and yachtsman. In 2007, Mallya bought a Dutch Formula One
team Spyker for US$110 million and renamed it as Force India. He was the first
Indian to become the owner of Force India Formula One. In January 2008, Mallya
acquired a team ‘Royal Challengers Bangalore’ in the Indian Premier League18 for
US$111.6 million. He also owned racehorses and won numerous trophies in horse
racing, including several prestigious Derbies. He launched a calendar named after
his brand, Kingfisher, in which the best of the models fell over each other to feature.
He held New Year parties at his famed Goan palatial bungalow.

Losing crown Jewels

In 2012, as KFA was on the verge of collapse, Mallya sold a controlling stake of
53.4% in USL to British liquor giant Diageo for US$2.1 billion, ceding control of his
flagship and the most successful firm of the UB Group. Reportedly, USL carried a
large debt burden as it had funded the US$827-million acquisition of Whyte &
Mackay mainly through debt in 2007. According to industry observers, the sale was
also impelled by the disinterest shown by Mallya’s son in taking over his father’s
business empire, which was a personal blow to the industrialist. As on December 31,
2015, Mallya held around a 3.99% stake in USL.

In April 2015, Diageo had asked Mallya to quit as chairman of USL after an internal
probe allegedly found financial irregularities and fund diversion when the company
was under his control. There were several allegations about possible fund diversions
from USL to the grounded KFA as well as overseas entities. However, Mallya denied
the charges and continued as chairman of USL. But a year later in February 2016,
he stepped down as chairman of USL after striking a deal with Diageo which
dropped all charges of irregularities against him and agreed to pay him US$75
million over a period of five years if he severed his working relationship with the
company. The agreement reportedly raised questions from industry experts about
possible violations of corporate governance.

In December 2014, Mallya resigned as director of MCFL, which was considered one
of the crown jewels of the UBL Group. Later, in May 2015, Zuari Fertilisers and
Chemicals Ltd30 (ZFCL) acquired an additional 36.56% stake in MCFL, taking the
total stake in the company to 53.03%. As of 2015, the UB Group held a 22% equity
stake in the company.

You might also like