BackDiageo’s offer is priced right: CFO
Diageo Plc's chief financial officer Deirdre Mahlan talks in an interview about the open offer
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Diageo Plc’s chief financial officer Deirdre Mahlan said in an interview that the company’s open offer to shareholders is priced right, makes a sound business case and is well-timed for it to acquire an additional 26% stake in United Spirits Ltd. A previous offer by the company failed to excite investors. Edited excerpts:
How hopeful are you about the open offer?
We believe that the offer is at an attractive price. And we are confident about its success. The offer is a 20% premium to the six-month average volume price and 24% premium price to Diageo’s last purchase in January. So we think the offer is at an attractive price. It is a unique opportunity for large (share) holders to monetize their investments. So we feel we should be confident.
You have a shareholders’ agreement in place with the UB Group, ensuring control over United Spirits. Why do you want to spend so much more money when you have control with almost 29%?
Of course, our existing shareholders’ agreement (with United Spirits) has economic interests along with some rights under the same agreement. But what a direct increase in shareholding gives us is our confidence on ownership over the long term. And the shareholders’ agreement has a natural ending date.
Why now?
We always wanted to ensure that we could have a direct say in the strategic progress of the business. We have been in the market for 18 months and we had our initial offer to increase our holding. We have been evaluating an appropriate time. But if you look at it, since the original transaction was closed, we have been investing significant amount of management time and energy in the business with 28% (stake). And now we felt it is in interest of shareholders to increase that holding and we found that at this point of time we have identified we could have an attractive offer to shareholders. So that is the main reason behind the timing.
Does Diageo regret not increasing its open offer price last year? It would’ve potentially saved hundreds of crores.
I don’t know that it is helpful to speculate on what might have happened then. We still feel that we were appropriate on the actions that we took at that time based on the conditions (that) existed.
What is the road ahead for Diageo in India?
We have long felt that India is an attractive market and we still believe that from the point of emerging market economies, it has a great potential, broadly. Also in terms of its demography, the population is relatively young and the middle class is growing. On a consumer goods point of view, it is consistently premiumizing. All of those are good for our sector. So we are really encouraged and optimistic about the business.
Are you happy with the way you are leveraging the strength of United Spirits’ distribution network?
Certainly, United Spirits has a very strong distribution platform and strong sales capabilities. In October last year, Diageo entered into a sales promotion agreement with United Spirits where United Spirits is representing our brands. And in the first half of Diageo’s fiscal year ending December, we had a significant improvement with a double-digit growth in Diageo India as a result of the distribution agreement with United Spirits. So clearly, already we are seeing some success.
Any update on the sale of Whyte & Mackay?
Whyte & Mackay sale is being managed by United Spirits. It is a United Spirits asset. I would not comment on the same.
What can go wrong in the open offer and in the integration of United Spirits with Diageo?
I don’t see any specific challenge. In any transaction, there will be always challenges and we have a great deal of experience working on significant merger transactions as well as regulatory environments. So far the transaction is expected to move ahead as we planned.
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