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Diageo gets majority stake in United Spirits with $1.9B open offer

02 July, 2014

British spirits maker Diageo Plc has seen through a successful open offer in its second attempt to get a majority stake in United Spirits. The firm’s revised offer to buy 26 per cent additional stake in the country’s top liquor maker was fully accepted by the shareholders, which allowed Diageo to take its holding to 54.78 per cent by shelling out Rs 11,448.9 crore ($1.92 billion) more.

In April, Diageo made its second open offer for United Spirits. VCCircle had first reported in November 2013 that Diageo is likely to come with another open offer and could offer Rs 2,900-3,200 per share.

Diageo had offered to buy shares at Rs 3,030 a share in the open offer which closed recently.

United Spirits scrip rose 2.9 per cent to end the day at Rs 2,486.5 a share on the BSE in a strong Mumbai market on Wednesday.

This was the second attempt by the liquor major to get a bigger say in the affairs of United Spirits, the world’s-largest spirits maker by volume. Its previous open offer triggered by the deal with UB Group to buy a strategic stake through a mix of stake purchase and preferential allotment did not find many takers.

In 2012, it had signed a deal to acquire up to 53.4 per cent of United Spirits, 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.

Diageo had offered Rs 1,440 a share in the tender offer a year ago and could garner a mere 0.04 per cent in the open offer as the share price had climbed much higher compared with what Diageo had offered.

This had taken its holding to just 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. It shelled out around $880 million for buying this stake.

Diageo had earlier refused to revise the open offer price for United Spirits even as the sharp run-up in the share price meant that the previous open offer was set to fail.

But it had been buying small lots in the open market to boost its holding. Last November it bought 1.96 million shares from the open market at Rs 2,400 per share valuing the transaction at Rs 472.31 crore ($75.5 million). Part of the stake was acquired through a bulk deal from Morgan Stanley Asia (Singapore) Pte, which sold off 3.9 million shares on the BSE. This has taken its holding to 26.3 per cent.

In January it hiked its stake in United Spirits again by acquiring 2.4 per cent more from a foreign portfolio investor for Rs 866 crore ($138 million), taking its holding to 28.7 per cent. The British firm has shelled out around $1.09 billion to buy 28.7 per cent of United Spirits to date.

JM Financial and HSBC Securities were managing the open offer. JM Financial was the sole manager to the previous open offer.

Although Diageo could not manage to buy half of the Indian firm earlier, as envisaged, by virtue of being the single-largest shareholder and having presence in the board with its nominees, Diageo was already in the driver’s 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.

(Edited by Joby Puthuparampil Johnson)


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Diageo gets majority stake in United Spirits with $1.9B open offer

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