United Spirits shares jump on Diageo deal

Shares of United Spirits Ltd(UNSP) jumped as much as 21 percent on Monday to a two-year high after several brokerages upgraded the stock, saying the Indian liquor company sold a stake to Diageo(DGE.L) at a higher-than-expected price.

Morgan Stanley raised its rating on United Spirits to 'overweight' from 'equal-weight', saying the $2.1 billion deal priced the company "significantly higher" than its base case value.

"USL is now a stock for every portfolio, we believe," Morgan Stanley analysts wrote in a note on Monday, while also raising its price target to 1,905 rupees from 1,000 rupees.

Diageo agreed on Friday to buy a 53.4 percent stake in the liquor maker controlled by Indian businessman Vijay Mallya by first acquiring 27.4 percent percent from its founders at 1,440 rupees per share, and then launching a mandatory offer for the remainder.

United Spirits shares were up 20.6 percent at 1,640.70 rupees as of 0503 GMT, after rising to as much as 1,646.00 rupees, their highest since October 7, 2010.

CLSA raised its rating to 'buy', while setting a new target price at 1,800 rupees, saying the deal would benefit United Spirits by reducing debt levels, increasing earnings, imposing financial discipline and providing operational advantages.

"We see this deal as a game changer for UNSP," CLSA said in an email to clients.

The brokerage also raised its fiscal 2014-15 earnings-per-share estimates by 35 to 40 percent following the deal.