Diageo gains control of United Spirits, raises stake to 55%

Bangalore: Diageo Plc said on Wednesday that it bought 26% of United Spirits Ltd shares from public shareholders for £1.11 billion ( ₹ 11,420 crore), raising its stake in India’s largest liquor company to 54.78%.

This was Diageo’s second open offer for United Spirits. The London-based producer of Johnnie Walker Scotch whisky and Smirnoff vodka said on 15 April that it would offer ₹ 3,030 per share to buy 26% in United Spirits from public shareholders.

Diageo’s initial effort to take control in November 2012 met with a muted response from United Spirits shareholders, with just 0.4% accepting an open offer. The latest price was more than double the ₹ 1,440 a share offered back then. That offer failed as United Spirits’ public investors held out for a higher price.

Diageo completed buying 25.02% in United Spirits from the company and its promoter UB Group last July, eight months after the companies first announced the deal in November 2012.

Diageo is expanding in a country that has the world’s largest number of whisky drinkers. Indians cumulatively consumed 1.5 billion litres of the liquor last year, according to Euromonitor data. With brands including Bagpiper and McDowell’s whisky, United Spirits controls about 40% of India’s spirits market by volume, the researcher estimates.

“Our announcement today is significant for Diageo,” Diageo chief executive officer Ivan Menezes said in a statement. “India has now become one of Diageo’s largest markets and will be a major contributor to our growth ambitions. USL (United Spirits) is the leading player in the attractive Indian spirits market with great brands, a unique route to consumer and talented people. We can now combine that strong platform with Diageo’s strengths to create a compelling future in India for Diageo, USL and the Indian spirits industry.”

Diageo has said it will fund the purchase with commercial paper and longer-term debt. The beverage maker has made it clear that it doesn’t plan to take United Spirits private.

United Spirits last month agreed to sell its Whyte & Mackay business to Philippines-based brandy maker Emperador Inc. for £430 million ($738 million).

The sale was made to assuage concerns by the UK Office of Fair Trading that a takeover by Diageo could lead to higher blended whisky prices in the UK.

United Spirits said last month that it was delaying reporting its fourth-quarter results for the third time because of accounting issues.

United Spirits loaned ₹ 1,350 crore to former owner Vijay Mallya’s debt-ridden UB Holdings Ltd, and is considering options to account for the loan in its balance sheet, the Bangalore-based company said in a 19 June statement.

Diageo said it expects to fully consolidate the results of United Spirits from Wednesday.

United Spirits shares rose 2.93% to ₹ 2,486.55 on BSE on Wednesday.