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Diageo snaps up Mallya's United Spirits, finally

British liquor giant to buy 53.4% for Rs 11,166 cr Mallya to remain chairman

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The six-year-long on-again, off-again courtship between and ’s Ltd (USL) had a happy ending in London today. And, true to his style, the man, often referred to as the king of good times, described the sale of his flagship company as a conscious desire to “embellish a family jewel”.

Under the deal terms that involve a four-stage process, Diageo has agreed to buy 53.4 per cent in USL for about Rs 11,166 crore, giving the world’s biggest spirits group a larger slice of a fast-growing market. Diageo will pay Rs 1,440 for a USL share, a six per cent premium on today’s close of Rs 1,360 a share on the .

Mallya, through , will hold 14.9 per cent stake in USL and will continue to retain the chairman’s position after the transaction. “Diageo had a need to consolidate USL into Diageo and I have only respected their wishes. I have even offered residual voting rights of the 14.9 per cent to Diageo,” Mallya said.

USL’s millionaire brands
  • Scotch whisky
    Black Dog, Dalmore, Jura, Whyte & Mackay
     
  • Whisky
    Royal Challenge, Bagpiper, McDowell's No 1, Signature, Antiquity
     
  • Brandy
    McDowell's VSOP
     
  • Rum
    Celebration Rum
     
  • Vodka & Gin
    Pinky, Romanov, Vladivar, White Mischief
     
  • Wine
    Bouvet Ladubay, Four Seasons

Diageo will first acquire 27.4 per cent in USL, first from the promoters, will buy treasury shares and then get a preferential allotment of 10 per cent. The total value for this will be Rs 5,726 crore. Subsequently, Diageo will launch an open offer for 26 per cent at Rs 1,440 a share, which will be valued at Rs 5,439 crore when fully accepted.

The deal would be the biggest inbound M&A since Britain’s sold majority stake in its Indian arm to last year.

RAISING A TOAST

Diageo will pay a total of Rs 11,166 crore to acquire 53.4% in United Spirits
What goes where
  • USL will get Rs 3,300 crore. USL has a debt of Rs 8,300 crore under a gearing of close to 2 times and majority of the new infusion will go to pay down this debt
     
  • After this transaction, UB Holdings will hold 14.9% in USL and UBHL will get an infusion of Rs 2,400 crore. Mallya technically has these resources to address the issue of Kingfisher Airlines. However, Mallya said that the management of UBHL and Kingfisher will address that issue keeping in interest what’s best for Kingfisher and UBHL. UBHL, too, had a debt of Rs 3,000 crore

Mallya said the deal would help USL deleverage itself.

Analysts were happy. “Some of the Mallya group firms have been in turbulence. This is his opportunity to revive the group’s fortune,” Jagannadham Thunuguntla, head of research at SMC Investments, told Reuters.

How Diageo will take control of United Spirits
Form of purchase Current share
capital
Enlarged
share capital
Consideration
(Rs cr)
Direct acquisition from UBHL 12.80% 11.50% 2,407
Direct acquisition from certain USL subsidiaries & group trusts 6.50% 5.90% 1,225
Preferential allotment - 10% 2,094
Tender offer (maximum) - 26% 5,439
Total - 53.40% 11,165

Diageo, with top-of-mind global spirits brands, will now get a firm push in the Indian market, valued at over Rs 35,000 crore and growing at a healthy 15 per cent a year. India-born Ivan M Menezes, now the COO of Diageo Plc, who is expected to lead Diageo in the near future, said the Indian market would be the second-largest for his firm, after the US. India consumes 260 million cases of spirits on an average a year. While USL sold 120 million cases in 2011-12, Diageo globally sold 156.5 million. But, with a portfolio of premium brands, Diageo’s revenues stood at $17 billion, versus USL’s Rs 9,200 crore.

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