Bangalore: Diageo Plc.’s offer to buy roughly Rs.5,500 crore worth of shares of United Spirits Ltd from the public has been delayed as the companies are yet to receive a clearance from the markets regulator.
London-based Diageo, the maker of Johnnie Walker Scotch whisky and Smirnoff vodka, announced in November that it would buy 53.4% of United Spirits for Rs.11,166.5 crore. The deal involves the direct purchase of a 27.4% stake in United Spirits with Diageo due to buy another 26% from public shareholders at Rs.1,440 a share, the price paid for the direct purchase.
However, in the days following the announcement, investors pushed up the price of the United Spirits stock to over Rs.2,000. The scrip lost 1.12% to Rs.1,915.25 on BSE, way above Diageo’s offer price.
The open offer was to be held from 7-18 January, JM Financial Institutional Securities Pvt. Ltd, which is managing the open offer, had said in December. On Monday, JM said in a regulatory filing that the companies are awaiting clearance from Securities and Exchange Board of India for the open offer.
“Diageo has made the applications through their advisors and hence, all questions must be directed to JM Financial. We are unable to comment,” United Spirits spokesperson Prakash Mirpuri said in an email.
“We continue to work towards our initial timeline, with the transaction completing in the first quarter,” Catherine James, head of investor relations at Diageo, said in an email.
Analysts say unless Diageo increases its offer price, investors won’t sell their shares. “Why would anyone tender their shares for such a low price when you can make Rs.500 more just by selling on the open market?” asked Sharan Lillaney, an analyst at Angel Broking.
James said Diageo was unlikely to increase its offer price of Rs.1,440. “There are no plans at this point to look at a creeping acquisition of a stake in United Spirits, given that the mandatory tender offer to acquire the additional 26% stake has not launched yet and the take-up is unknown,” she said.
Even if investors do not tender their shares to Diageo’s offer, the British company has a guarantee that the UB Group’s holding company will vote its remaining shareholding in United Spirits as per Diageo’s wishes for four years, according to the deal terms. The holding company, United Breweries Holdings Ltd, still owns 14.9% of United Spirits’ current shareholding.
The deal with United Spirits, India’s biggest distiller, will give Diageo a strong foothold in a market where it has struggled to establish itself. Diageo’s global rival Pernod Ricard, maker of Chivas, Blenders Pride and Royal Stag whiskies, has successfully built a large presence in Asia’s third largest economy to the extent that it is more profitable than United Spirits, according to industry executives.
The deal will also help reduce the Indian brewer’s massive debt of over Rs.8,500 crore.
James said Diageo will make further investments in United Spirits to improve its capital position and cut its debt even more. She said Diageo’s integration team, led by Andrew Mason—president, new businesses, was also working to identify “cost and workforce synergies”.
However, James said Diageo had no plans to integrate its India business with United Spirits, but it may use it as a distributor in certain states.