Diageo to take 27.4% stake in United Spirits for Rs 5,725 cr

BL :10 th Nov 2012

BANGALORE, NOV.9: 

The £11-billion British liquor giant Diageo Plc has agreed to buy 27.4 per cent stake in the Vijay Mallya-owned United Spirits concluding one of the longest drawn courtships between the two liquor majors.

Post an open offer for 26 per cent, Diageo will own 53.4 per cent in United Spirits that will involve a total payout of Rs 11,166.5 crore.

Diageo will buy from USL’s promoters, including UB Holdings, the 27.4 per cent for £ 660 million (around Rs 5,725 crore) at Rs 1,440 a share. Then, it will make an open offer for the 26 per cent shares held by the public.

Out of Rs 5,725 crore, United Spirits will get Rs 3,300 crore while UB Holdings will get the rest.

“It is a win-win for both the companies. I have not sold my family jewels. I have only embellished them,” Mallya, who will continue to remain Chairman of United Spirits post the Diageo takeover, told newspersons hours after signing the deal.

The deal is considered the biggest inbound M&A this year. Mallya clarified that the money raised through the stake sale will not be used to clear the debt of Kingfisher Airlines. “Each of our group companies are strong listed entities. There is no cross contamination. There never has been. There will never be,” he said. The liquor baron did not agree it was a sell out though it was clear that in case the open offer gets fully subscribed, USL will become a subsidiary of Diageo. “It is not a sell out. I understand the compulsions behind this decision and I appreciate the needs of Diageo in structuring such a deal,” Mallya said.

He said in case the open offer did not get fully subscribed, the promoters will retire the rights of the UB Holdings’ stake of 14.9 per cent. United Spirits debt total about Rs 8,500 crore mainly on account of the funds raised to buy the Scottish bulk Scotch whisky maker Whyte & Mackay.

With the acquisition of USL, Diageo will own Whyte & Mackay and Bouvet Ladubay, a French wine company based in the Loire Valley.

Mallya clarified that as part of the agreement, all security interests over the USL shares to be acquired by Diageo will be released. As owning another UK-based company (Whyte & Mackay) could attract anti-trust laws, mandatory regulatory approvals (including competition approvals) in India and elsewhere will be sought.