As UK’s fair trade watchdog OFT continues to probe Diageo’s purchase of controlling rights in United Spirits from India’s UB group, the regulator has released a 53-page report detailing concerns posed by this deal to competition in the British whisky market.

The Office of Fair Trading (OFT) had decided on November 25, 2013 to have a fresh look at the $2 billion deal, after Diageo offered to divest bulk of Whyte & Mackay (W&M) business to address anti-competition concerns posed by this merger.

OFT on Thursday made public the “full text” of its November 25 decision, wherein it said that “the OFT is concerned only by the impact of the transaction”.

“The focus of the competitive assessment is therefore on the incremental effect on competition of Diageo’s shareholding and the control this confers on Diageo.

“... A significant number of third parties raised the concern that the parties would restrict the supply and/or increase prices of private label blended Scotch whisky,” the 53-page order said.

The OFT had received comments from a wide range of customers and competitors of Diageo and W&M and their views have been incorporated appropriately in its decision.

The regulator said that it “found that the merger gives rise to a realistic prospect of a substantial lessening of competition” and subsequently the merged parties offered an undertaking “to divest the entirety of the W&M business apart from two malt distilleries and the associated brands of those two distilleries“.

Diageo plc manufactures and supplies spirits, wine and beer in the U.K. and around the world. It owns a number of spirits brands both worldwide and in the UK, including Smirnoff vodka, Bell’s and Johnnie Walker Scotch whisky, Baileys liqueur, Tanqueray gin and Captain Morgan rum.

On the other hand, India-based United Spirits, part of Vijay Mallya-led UB Group, manufactures and supplies spirits in the U.K. and in other countries. All of its sales of products in the U.K. are made through its U.K. subsidiary W&M.

United Spirits had acquired W&M for about ₤595 million (then nearly Rs 5,000 crore) in 2007.

In July 2013, Diageo completed acquisition of a 25.02 per cent interest in United Spirits, while it has now raised its stake to close to 30 per cent.

While the deal has been cleared by various regulators, including India’s fair trade watchdog CCI, OFT ruled in November last that the merger may substantially lessen competition in the supply of blended whisky to retailers.

OFT came to this conclusion after analysing evidence including data on consumer switching between brands, economic modelling and internal documents.

“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,” OFT had said earlier.

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