Diageo acquires 25.02% in United Spirits as against the original plan of 53.4%

Diageo, the world’s largest spirits company by revenue, has managed to buy 25.02 per cent of United Spirits, less than half of its original plan after its open offer failed and the quantum of shares bought from Vijay Mallya’s UB Group and out of the treasury stock of the firm was less than what it had envisaged.

Last year, it had signed a deal to acquire up to 53.4 per cent of United Spirits Ltd, the world’s largest spirits player by volume, in a multi-tiered transaction worth as much as $2.1 billion. Around 27.4 per cent stake was to be purchased through a mix of preferential allotment and stake purchase from UB Group while the rest was proposed to be acquired through an open offer.

The firm said on Thursday that it acquired 25.02 per cent and completed the transaction announced earlier.

It picked around 10 per cent through a preferential allotment for Rs 2,093 crore and around 0.04 per cent through the open offer for around Rs 84.5 crore. On Thursday, it completed the share purchase from UB Group for around Rs 3,134 crore, taking the total deal amount to Rs 5,312 crore ($882 million).

The sale of 2.38 per cent from the treasury stock of United Spirits has not been completed yet as certain conditions have not been met, as per the disclosure. Diageo said it has not been able to complete acquisition of shares from all of the sellers under the share purchase agreement as certain lenders to USL are refusing to release security that they hold over the treasury stock.

However, despite having less than 26 per cent stake, which is a critical mark in board rights, by virtue of being the single largest shareholder and say in the board with its nominees, Diageo will be in the driving seat. In the original agreement it had ensured that if Diageo is unable to obtain majority shareholding, UB Holdings will vote as directed by Diageo for a four‐year period.

Ivan Menezes, chief executive of Diageo, said, “USL’s strong market-leading position combined with Diageo’s strength and capabilities opens an exciting and important new chapter for Diageo in the attractive Indian spirits market. Since we received approval for this transaction we have been getting ready for closing and integration. Having completed the share purchase, we will now begin the work to identify and capture the significant growth opportunities within this attractive market.”

With the acquisition, Diageo has introduced new members on the board which include Gilbert Ghostine as a non-executive director, Ravi Rajagopal as a non-executive director, PA Murali as CFO and has also nominated him as an executive director of USL. In addition, it has nominated Arun Gandhi, Sudhakar Rao, D Sivanandhan and Renu Kamad as independent non-executive directors of USL. UB Group chief Vijay Mallya will continue in his current role as chairman of United Spirits.

It will also make an open for Pioneer Distilleries which is required by the SEBI Takeover Regulations, by virtue of the shareholders agreement coming into effect on completion of the USL transaction, to acquire up to the remaining 18.42 per cent of Pioneer's outstanding share capital. Pioneer shareholders are entitled to receive Rs 60 for each share against the market price of Rs 38.25 apiece, on the last business day prior to the transaction announcement.

Diageo has also completed its agreement to acquire a 50 per cent interest in the company which owns United National Breweries’ traditional sorghum beer business in South Africa in June. The remaining 50 per cent is held by a company affiliated with Vijay Mallya. Diageo has acquired its 50 per cent interest for $36 million.

Diageo indicated that the joint venture will explore the opportunity of extending their relationship into other emerging markets in Africa and Asia (excluding India) through a further joint venture relationship on terms which are yet to be determined.

(Edited by Joby Puthuparampil Johnson)

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