(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Una Galani
MUMBAI, April 21 (Reuters Breakingviews) - 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.
On Twitter twitter.com/ugalani
- Vijay Mallya was arrested in London on April 18 at the request of Indian authorities that seek his extradition from Britain over accusations of fraud.
- On April 19, United Breweries told the Indian stock exchange that it only found out about Mallya's arrest from media reports and had no knowledge of any proceedings initiated against its chairman.
- The board of United Breweries asked Mallya to step down in February after the Securities and Exchange Board barred Mallya from holding any board or key managerial positions at companies in India. However, Mallya still remains chairman of United Breweries.
- Heineken Chief Executive Jean-Francois van Boxmeer told analysts on Feb. 15 that the request from United Breweries for Mallya to step down was "just a court order that had to be executed", adding it was not the will of the shareholders or the board.
- On Jan. 25, India's capital markets regulator, the Securities and Exchange Board of India, barred Mallya from participating in the country's securities markets for allegedly diverting funds from whiskey maker United Spirits. Mallya denies the allegations.
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Editing by Quentin Webb and Nicolle Liu