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Vijay Mallya gives up boardroom battle for United Spirits, quits as chairman

26 February, 2016

Vijay Mallya has resigned as chairman and non-executive director of what was once his flagship company United Spirits Ltd following a boardroom battle, three years after selling control of the firm to the UK-based Diageo Plc.

The development brings to an end an era for the flamboyant businessman who made ambitious bets with big overseas acquisitions through United Spirits, besides floating an airline that went bust after piling up almost Rs 7,000 crore ($1.02 billion) in debts it couldn’t repay.

United Spirits said late Thursday that Mallya has resigned also from his position as a director at Royal Challengers Sports Pvt Ltd and Four Seasons Wines Ltd with immediate effect. The company has named Mahendra Kumar Sharma, independent director and chairman of the audit committee, as the chairman.

It added that this ends the uncertainty relating to the company’s governance and the ambiguity relating to some historical transactions that were voted down by its shareholders in November 2014. The company has also put in place a global (excluding UK) five-year non-compete pact with Mallya.

“This will allow the company to prosper and build on the great platform that we have already created,” said Anand Kripalu, managing director and CEO.

Genesis of problem, settlement terms

The two sides have agreed to settle the disagreements related to certain related-party transactions entered by UB Group firms with United Spirits, before Diageo gained control in 2014.

Diageo, the world’s largest spirits maker, had last year made a move to remove Mallya from the board. Mallya, once India’s liquor king, had then declined to resign.

State-run lenders SBI, PNB and United Bank of India have declared Mallya and some of his firms as willful defaulters

Diageo had initiated an investigation after completing a revised open offer to gain control of USL in July 2014. It now owns a 54.78 per cent stake in the firm while Mallya owns 3.99 per cent, partly through his listed holding firm United Breweries Holdings Ltd. About 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 covered the company’s financial dealings with various UB Group companies. This included a loan of Rs 1,300 crore to United Breweries Holdings, which may have been further lent to Kingfisher Airlines, the defunct aviation venture of UB Group. USL had to make a provision of Rs 330 crore for 2013-14 on this eight-year loan. The investigation also covered a loan of Rs 600 crore to various business associates of USL, including third-party bottlers.

Mallya had argued earlier that Diageo had conducted an extensive due diligence exercise at USL over four months before sealing a deal. He had also argued that details of all transactions were disclosed to Diageo before the deal was struck and expressed surprised that such prior-period matters became the basis for actions later.

After the settlement on Thursday, Mallya has procured or agreed to procure the termination by the relevant counterparties of historical agreements to which United Spirits is a party and ones that were voted down by the shareholders in November 2014.

These include a services agreement with Kingfisher Finvest, an advertising agreement with car racing team Force India (under Watson Ltd) and a sponsorship agreement with United Mohun Bagan Football Team, among others.

These agreements were entered into before Diageo’s acquisition of shares of USL from United Breweries Holdings on July 4, 2013.

USL has also entered into an agreement that allows Mallya to acquire up to 13 residential, non-core properties from the firm in a time-bound manner. The price at which the properties may be acquired will be based on a fair market value, with a 10 per cent discount to the valuation of three properties in Mumbai, Goa and New Delhi. This will eliminate current contingent liabilities and any future liabilities associated with these agreements.

The settlement also leads to termination of shareholders’ agreement signed at the time of Diageo’s initial transaction. United Breweries Holdings has, however, indicated that it may be prevented from agreeing to terminate this agreement immediately due to legal and court restrictions which may apply as a result of winding-up proceedings to which it is subject in India.

Earlier this month, state-run Punjab National Bank had listed the public listed group holding firm of Mallya as a willful defaulter. State Bank of India and United Bank of India had also previously declared Mallya and UB Holdings as willful defaulters.

While Mallya will have no ongoing role at the company, USL has agreed that he would have the honorary title of founder emeritus. This title carries no authority, responsibility, rights or benefits within the company or its group. Mallya’s son, Siddhartha, will be a director of Royal Challengers Sports, which holds the franchise for the IPL team Royal Challengers Bangalore, for two years or till it remains part of the USL Group, whichever is earlier.

Mallya has lost grip on Kingfisher beer maker United Breweries, of which the biggest shareholder is Dutch firm Heineken

Mallya will also have the honorary title of chief mentor at Royal Challengers Sports.

End of reign

Mallya’s disassociation with United Spirits marks the end of an era. United Spirits, a firm his father created decades ago and one that Mallya took to uncharted territories nine years ago with the audacious acquisition of Scottish scotch maker Whyte & Mackay for nearly $1.2 billion, was his crown jewel.

A year before the Whyte & Mackay deal, Mallya had also bought French winery Bouvet Ladubay SA. USL has now agreed to sell Bouvet Ladubay as part of a plan to divest non-core assets.

The debt piled up by the Indian firm following the acquisitions weighed on the group and eventually forced Mallya to bring Diageo, the maker of Johnnie Walker scotch whiskey and Smirnoff vodka, as a majority shareholder.

In a bid to prune debt, USL last year decided to sell Whyte & Mackay to the Philippines-based conglomerate Emperador Inc, owned by billionaire Andrew Tan, for an enterprise value of about £430 million ($725 million then).

Mallya has also lost grip on what is now his flagship business interest—Kingfisher beer maker United Breweries Ltd. Last July, United Spirits had sold its entire 3.21 per cent stake in the beer maker to Dutch brewer Heineken for Rs 872 crore ($137 million then). This gave Heineken, the world’s third-largest brewer and the single-largest shareholder of United Breweries, a larger play in the company with a holding of 42.06 per cent.

United Breweries houses a clutch of brands besides the flagship Kingfisher including Kalyani Black Label, Zingaro, Guru and Bullet.

Previously he was also forced to bring Saroj Poddar’s Adventz Group as a white knight to fend off a hostile takeover bid for public listed Mangalore Chemicals & Fertilizers. Poddar now owns majority stake in the fertiliser company, even as Mallya retains some 22 per cent stake.


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Vijay Mallya gives up boardroom battle for United Spirits, quits as chairman

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