Karnataka High Court says UB Group’s sale of United Spirits to Diageo invalid

Diageo’s deal to buy a large minority stake in the country’s largest liquor maker United Spirits is facing a new challenge as the Karnataka High Court has ruled the sale of United Spirits by UB Group as null and void.

The regional court gave its ruling over a winding up petition filed by a lender to UB Group’s defunct Kingfisher Airlines whose debt was guaranteed by United Breweries Holdings, a public listed firm with stake in both the airlines as well as United Spirits.

Previously, the Indian securities market regulator as well as competition authority had looked closely at the claims of the creditors but had both given their green signal to the deal. With the new development the deal could get into a no-man’s land as the transaction including the associated open offer has been completed.

Details of the ruling are not yet available on whether it seeks to only annul the sale of the stake held by UB Group or also invalidates the overall transaction including the preferential allotment as also the open offer which was triggered by the deal.

Diageo said it will appeal against the order, which could in effect invalidate the sale of shares by UB Group to the world’s largest spirits maker by revenue.

UB Group spokesperson also acknowledged the state court’s ruling but reserved comments till the text of the order is studied further.

Last year, Diageo 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 could buy a mere 0.04 per cent in the open offer as the share price had climbed much higher compared to what Diageo had offered.

It had managed to acquire 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.

Last month, Diageo bought another 1.3 per cent stake purchasing 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). This has pushed up its holding to 26.3 per cent.

Although Diageo could not manage to buy half of the Indian firm, as envisaged, by virtue of being the single-largest shareholder and say in the board with its nominees, Diageo is 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.

In the meantime, Diageo was also looking to launch another open offer for United Spirits as first reported by VCCircle.

Diageo is also facing another issue related to the deal as a UK authority has ruled its deal with United Spirits could affect competition in its home market by virtue of United Spirits’ presence in the UK through Whyte & Mackay. UB Group had acquired Whyte & Mackay few years ago in a $1.2 billion dollar deal which also added huge debt on United Spirits balance sheet. This asset is now proposed to be sold off.

Also Read

Diageo may launch another open offer for United Spirits, picks 1.3% for over $75M

Diageo considers selling almost all of Whyte & Mackay as part of United Spirits deal

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

Diageo to buy up to 53.4% of United Spirits in a $2.1B deal

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