Diageo gains control over United Spirits, ups stake to 25%

However, Mallya has not been able to get the 2.38% of share capital released, which was pledged with the lenders

Global spirits major Diageo on Thursday completed the acquisition of a further 14.98 per cent stake in Vijay Mallya’s United Spirits Ltd (USL), India’s largest company in this segment, for around Rs 3,134 crore (£344.2 million).

However, Mallya has not been able to get the 2.38 per cent of share capital released, pledged with lenders. The UB Group said it was making efforts to get it released at the earliest.

After the transaction, Mallya with his promoter-led companies will hold 11.08 per cent of USL’s enlarged share capital. With this, Diageo’s holding in USL has gone up to 25.02 per cent. Diageo paid Rs 1,440 a share and funded the acquisition through existing cash resources and debt.

With the completion of the share purchase agreement, the shareholders’ agreement between Diageo, United Breweries (Holdings) Ltd and KFinvest, a subsidiary of UBHL has come into effect.

Vijay Mallya, chairman of the UB Group, said: “I am very pleased that we have completed our share purchase agreement today (Thursday). USL has entered into the next stage on its journey and I look forward to the remaining part of that journey in my role as chairman of USL.”

On May 27, Diageo had subscribed to a preferential allotment of new shares in USL, amounting to 10 per cent of the post-issue enlarged share capital, for a consideration of Rs 2,092.7 crore (£249.3 million). Separately, Diageo acquired 58,668 additional USL shares in the tender offer for a total consideration of Rs 8.57 crore (£983,789).

Diageo now holds 36.35 million shares, representing 25.02 per cent of the enlarged USL share capital at an aggregate cost of Rs 5,235 crore (about £594.4). This represents 18 times USL’s earnings before interest, taxes, depreciation and amortisation (Ebitda) for FY13. The transaction is expected to be earnings per share-accretive from the second year, economic profit positive from the fifth year, assuming 12 per cent weighted average cost of capital.

Diageo’s 25.02 per cent shareholding in USL — together with the voting and other governance arrangements agreed with the UBHL group, including Mallya’s continued role as chairman of USL — will enable Diageo to fully reflect the results of USL in its consolidated accounts, which it expects to do from January 1, 2014.

Ivan Menezes, CEO of Diageo, said: “USL’s strong market-leading position combined with Diageo’s strength and capabilities opens an exciting and important new chapter for Diageo in the attractive Indian spirits market. Since we received approval for this transaction, we have been getting ready for closing and integration. Having completed the share purchase, we will now begin the work to identify and capture significant growth opportunities within this attractive market.”