Diageo takes big stake in USL

Buyout through offer route will be 26 per cent of share capital

United Spirits Ltd (USL) Chairman Vijay Mallya on Friday officially confirmed what he has been pursuing for over two years now – a stake sale with British liquor giant Diageo.

Diageo later confirmed that it was taking a controlling stake of 27.4 per cent early in the day, while USL chose not to comment on how it would employ the newly raised funds.

After emphatically stating last month that he would not sell his “family silver” to fund his grounded Kingfisher Airlines (KFA), Mallya’s deal was valued at Rs 5,725.4 crore (approximately £660 million). The tripartite agreement between Diageo, USL and UB Holdings Ltd (UBHL) was concluded at a price of Rs 1,440 per share. The stake buyout is expected to touch 53.4 per cent eventually, as any sale of more than 20 per cent will trigger an obligation on Diageo to make a open offer to shareholders of USL, as per SEBI rules.

The buyout through the offer route will be 26% of the enlarged share capital of USL.
The purchase will be the biggest inbound Indian M&A deal since British oil firm Cairn Energy Plc sold a majority stake in its Indian business to Vedanta Resources Plc last year.

Diageo said it would launch a tender offer to acquire a maximum of 37,785,214 shares at a price of Rs 1,440 per share, taking the deal value to Rs 11,166.50 crore (approximately £1.3 billion), taking Diageo’s stake to 53.4 per cent in USL. The British firm has allowed Mallya to continue as chairman of USL.

In a conference call with reporters on Friday evening along with Chief Operating Officer and Executive Director of Diageo Plc Ivan Menezes, Mallya said, “I am embellishing (USL), not selling family silver.”

Menezes said that the deal is of “strategic” importance to Diageo. “India will be the No 2 market after the US and has the potential to become the largest market in future, that’s why we are here,” he said.

On the nature of title of his encumbered holdings and its implications during an eventual transfer of stake to Diageo, Mallya said, “We will ensure clear title to Diageo. We will do whatever (we have to) to deliver clear title.”

After the sale, UBHL will hold 14.9 per cent stake in USL. USL had a market capitalisation of Rs 17,784 crore as of Friday.

In a statement, CEO of Diaegeo Paul S Walsh, said, “I am delighted at the opportunity Diageo has to be part of India’s large and growing local spirits market. The combination.. ..will ensure that USL continues to lead the industry in India.”

Kingfisher shares gained 4.7 per cent, while United Spirits ended 1.22 per cent higher (Rs 1,359.70) and United Breweries Holdings Ltd rose 3.3 per cent on day when the benchmark Sensex closed nearly 1 per cent lower.