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Boardroom battle looms as Diageo asks Vijay Mallya to vacate United Spirits’ chair

By Raghuvir Badrinath

  • 25 Apr 2015
Boardroom battle looms as Diageo asks Vijay Mallya to vacate United Spirits’ chair
Reuters | Credit: Vijay Mallya

Within a year of gaining control of United Spirits Ltd (USL), the world's largest spirits maker Diageo Plc has made a move to remove local partner and erstwhile promoter of the firm Vijay Mallya from the board of the company. Diageo controlled board has asked Mallya to step down as chairman and as a director of the firm.

However, Mallya is not ready to give up so easily, a business he built over the past three decades. He said he will not resign from the board of USL, previously a crown jewel in his liquor empire.

The development is related to an ongoing investigation probing irregularities over financial transactions involving USL and other UB Group firms, controlled by Mallya.

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Diageo had initiated a thorough investigation after completing a revised open offer to gain control of USL last July. It now owns 54.78 per cent stake in the firm while Mallya owns 4.09 per cent stake, partly through public listed holding firm United Breweries Holdings Ltd. Over half of UB Group's stake is pledged with financial institutions. However, UB Group is still counted as a co-promoter of the firm.

The probe covers the company's financial dealings with various UB Group companies including a loan of Rs 1,300 crore to United Breweries Holdings, which may have been further lent to Kingfisher Airlines, a defunct aviation venture of UB Group.

USL was forced to make a provision of Rs 330 crore for FY14 on this eight-year loan.

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The ongoing investigation also covers a loan of Rs 600 crore to various business associates of USL, including third-party bottlers.

Mallya said the decision of the USL board to force him to step down at a meeting on Saturday, April 25, is based entirely on a report of auditing services firm Pricewaterhouse Coopers (PwC).

"The PwC Report essentially deals with past transactions entered into by USL between 2010 to 2012 which have been duly reflected in the audited accounts of USL without qualification and in full compliance of law at the relevant time, and duly approved by the then directors of USL and its shareholders," Mallya said.

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He said PwC made no effort to contact the then USL board members or auditors to verify the position and seek clarity. In addition, the current board of USL consists of directors appointed by Diageo and who have absolutely no knowledge of the past, the statement added.

"Prior to acquiring control of USL, Diageo conducted an extensive due diligence exercise at USL over 4 months in the course of which details of all transactions were disclosed to them. It is, therefore, surprising that such prior period matters have become the basis for actions today," Mallya said.

He claimed the PwC report is based on half truths and twisted facts against the previous management he would contest the claims.

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"The inferences and allegations are unjustified and false and we were deprived of the opportunity to place correct and complete facts before the new board of USL," he said.

He signed off saying that he does not intend to resign as a director of USL and shall pursue the contractual obligations with Diageo.

Email queries to PwC and Diageo during the weekend did not elicit a response.

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This comes within two days of Diageo controlled USL announcing the exit of its CFO, board member and long timer with UB Group, P A Murali.

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