India’s largest distiller United Spirits (USL), controlled by the world’s biggest spirits maker by revenues Diageo Plc, has decided to hive off its Malkajgiri unit in Andhra Pradesh and Palakkad unit in Kerala, the company said in a stock market disclosure.
This is part of a plan to shore up resources as the company looks to strengthen its balance sheet. In a parallel move the company’s board has also authorised the management to look at ways to monetise its surplus assets.
The board members have also approved reporting to the Board of Industrial and Financial Reconstruction (BIFR), that the accumulated losses of the company at the end of FY14 has resulted in erosion of more than 50 per cent of company’s peak net worth during the immediately preceding four financial years. The firm will hold a EGM to take stock of the situation of turning into a ‘sick’ company.
Last month, USL had divested 11.35 per cent stake in Pioneer Distilleries Ltd through an offer for sale. This was to meet minimum public holding norms.
In May this year, USL had to divest the entire equity stake in scotch maker Whyte & Mackay to Philippines-based conglomerate Emperador Inc, owned by billionaire Andrew Tan, for an enterprise value of approximately £430 million ($725 million).
Diageo and United Spirits are both suppliers of spirits in the UK and across the world. In the UK, United Spirits’ subsidiary, Whyte & Mackay, is primarily active in the supply of whisky but also owns and distributes other spirits, including vodka. Besides selling bottled blended whisky to retailers, Whyte & Mackay is also an important supplier of own-label blended whisky.
The USL board also approved the agreement with Diageo to sell Diageo’s brands through all of United Spirits’ networks. United Spirits will get distribution fees of 5-6 per cent for this sale.
Early this year, British spirits maker Diageo saw 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.
Shares of USL closed at Rs 2553.20 each, up 7.45 per cent on BSE in a strong Mumbai stock market on Monday.
(Edited by Joby Puthuparampil Johnson)