Diageo completes United Spirits takeover4 min read . Updated: 04 Jul 2013, 11:37 PM IST
UK distiller buys further 14.98% in United Spirits for £344.19 million from UBHL, other promoter companies
Mumbai/Bangalore: Diageo Plc finally completed its takeover of Vijay Mallya-promoted United Spirits Ltd on Thursday, nearly eight months after the companies announced the transaction that will provide much-needed funds to the liquor baron and his debt-laden UB Group.
The deal will also catapult the UK distiller to the top position in a market where it has lagged both domestic and global rivals.
United Breweries (Holdings) Ltd (UBHL), the holding company of the UB Group, and other promoter companies sold 14.98% in United Spirits for £344.19 million (around ₹ 2,070 crore) to Diageo on Thursday, the UK distiller said in a statement.
Diageo is now the largest shareholder in United Spirits with a 25.02% stake, much lower than the 53.4% it originally sought, while UBHL and other promoter firms own 11.08%.
“Through this acquisition, we have transformed Diageo’s position in India, a market which is one of the biggest growth opportunities in our industry," Diageo chief executive officer (CEO) Ivan Menezes said. “India will become one of Diageo’s largest markets, and with its increasing number of middle-class consumers looking for premium and prestige local spirits brands as income levels rise, it will also become a major contributor to our growth ambitions."
Mallya will remain chairman of United Spirits, Ashok Capoor CEO and P.A. Murali chief financial officer, but Diageo has the right to appoint a CEO and a CFO. Diageo also named two of its nominees and three independent directors to the board of United Spirits, which controls over half of India’s liquor market.
Shares owned by the USL Benefit Trust, representing 2.38% of United Spirits and which were part of the original deal announced on 9 November, could not be purchased by Diageo as some United Spirits’ lenders did not release the pledged shares.
“United Spirits believes that this refusal is in clear breach of the applicable contractual arrangements. Accordingly, United Spirits and the trustees of the USL Benefit Trust are taking steps to expedite release of the security to enable the balance of the sale under the share purchase agreement to Diageo Bidco to take effect as soon as practicable," Diageo’s statement said.
On 9 November, Diageo agreed to buy a 53.4% stake in United Spirits for about ₹ 11,166.5 crore as it sought to improve its performance in India. The transaction included the purchase of a 19.3% stake from UBHL and fresh preference shares from United Spirits. The British distiller was to buy the remaining 26% from the public shareholders of United Spirits.
The largest ever deal in Indian liquor was expected to be completed by 31 March, but it was held up by the Competition Commission of India and the Securities and Exchange Board of India as the regulators sought more details on the deal structure and anti-trade issues.
It was further delayed as lenders to Mallya’s Kingfisher Airlines Ltd filed a petition to wind up UBHL and tried to stop the UB Group’s holding company from selling shares to Diageo. UBHL has given corporate guarantees worth ₹ 8,925.86 crore to Kingfisher’s creditors, according to its latest annual report.
Diageo’s open offer to shareholders also failed and the company announced in May that it bought less than 0.5% of United Spirits shares, which are trading at a significantly higher price than what the UK distiller had offered.
The companies finally obtained all the required regulatory and legal clearances by June.
“I don’t think it changes much for the UB Group as such. The strain in UB Group is Kingfisher (Airlines) and this money does nothing to alleviate that pain," said Nikhil Vora, managing director and head, research, IDFC Ltd.
“The deployment of funds received by UBHL is a grey area, but it’s highly unlikely that new money would go into Kingfisher and anyway the funds are not enough for a restart. I don’t think Kingfisher will ever get restarted. At best, there could be a settlement with the banks... (The deal’s completion) is positive for Kingfisher’s lenders because they have a chance to recover some of their money," he said.
Since the deal was announced in November, Mallya’s fortunes, already dented by his investment in Kingfisher Airlines, have taken a bigger knock. Kingfisher’s lenders are in the process of collecting around ₹ 1,000 crore by selling the pledged shares of UB Group companies, including United Spirits and Mangalore Chemicals and Fertilizers Ltd (MCFL).
Mallya may lose control of MCFL with Deepak Fertilisers and Petrochemicals Corp. Ltd and Kolkata-based Adventz Group having bought large stakes in the fertilizer maker.
Diageo on Thursday warned that if the courts passed winding-up orders against UBHL, the sale of shares by the holding company in United Spirits may be deemed void.
“It is possible that if a winding-up order were to be passed in respect of UBHL, Diageo could lose title to the 10.14 million USL shares acquired today from UBHL," it said.
United Spirits gained 1.69% to close at ₹ 2,556.25 a share on Thursday on BSE, while the Sensex rose 1.22% to 19,410.84 points. Since 9 November, United Spirits has gained 88% and the Sensex 3.89%.