USL shareholders approve preferential allotment to Diageo

Diageo's management avers that there are no plans for a creeping acquisition

Shareholders of United Spirits (USL) have approved the preferential allotment of shares to liquor giant Diageo, amounting to 10 per cent at Rs 1,440 a piece, as part of the acquisition of the former, executives of the London-headquartered company said in an analyst call on Tuesday.

However, Catherine James, head of investor relations at Diageo, reiterated that there were no plans to look at a creeping acquisition of stake in the event the 26 per cent mandatory open offer remained unsubscribed.

The statement comes at a time when there has been much speculation about a creeping acquisition following the stock price of USL running up since the November 9 announcement by Diageo that it was acquiring a majority stake in the Bangalore-headquartered company. USL's stock price currently stands at Rs 1,921 a piece on the Bombay Stock Exchange (BSE), making the open offer unattractive at Rs 1,440 a piece.

HIGH ON INDIA

• United Spirits (USL) shareholders have approved the preferential allotment of shares to Diageo amounting to 10 per cent at Rs 1,440 a piece, as part of the acquisition of the former
• While USL is present across the whisky pyramid — the largest spirits segment in India — besides allied categories such as rum, vodka and brandy, it derives bulk of its revenues by pricing low and driving volumes
• Diageo says the endeavour in India would be to provide good quality products, packaged well, with a compelling story to tell

James said that a creeping acquisition was not part of the company's strategy to take control of USL, which produces over half the industry's volumes at over 125 million cases in India. The domestic spirits market is pegged at nearly 250-million cases, growing at a clip of 10-12 per cent per annum.

James said that the London-headquartered company had put an integration team in place led by Andrew Morgan, president, new business, Diageo, who would look at driving synergies at the two companies. Besides trimming the workforce and pruning costs, Diageo would look at tapping the distribution system of USL to push its own brands in the country. "USL will become the distributor of Diageo India products and we will pay them for that," James said, adding that the company would also look to enhance the marketing spends of USL from the current five per cent of sales to about six to seven per cent. Platforms such as cricket would be leveraged for the purpose, much like the way Diageo has used formula one globally. The latter sponsors the Mercedes-McLaren formula one team.

James, who was speaking from London, also said that there were no plans to downsize the product portfolio of USL, which could instead act as stepping stones to consumers looking to uptrade. "We believe in providing a price ladder and hope that the Indian consumer continues to premiumise," she said.

While USL is present across the whisky pyramid — the largest spirits segment in India — besides allied categories such as rum, vodka and brandy, it derives bulk of its revenues by pricing low and driving volumes. Three months ago, the company slashed the price of its McDowell's No 1 whisky by 10 per cent in a bid to stave off competition from archrival Pernod Ricard. The latter's Royal Stag competes with McDowell's No 1 in the prestige whisky segment and has a share of 31 per cent to McDowell's 49 per cent. But Royal Stag has been growing at a faster clip than McDowell's in the last few years, prompting USL to take this measure.

James said the endeavour in India would be to provide good quality products, packaged well with a compelling story to tell. "We will offer value-for-money, but the price-value equation has to be right, and above all, profitable for us," she added.