Sebi clears Diageo's open offer for USL stake

The regulator gives its green signal to Diageo's Rs 5,441-crore open offer for 26% non-promoter United Spirits

The Securities and Exchange Board of India (Sebi) has given its green signal to global liquor giant Diageo Plc’s Rs 5,441-crore open offer for 26 per cent non-promoter United Spirits Ltd (USL) stake. The regulator on Tuesday issued its final observations on the Rs 11,167-crore Diageo-USL deal, which had been in limbo since November, as Sebi was against a clause in the agreement.

Though Sebi did not make its observations public, legal experts said it was likely Diageo had agreed to rework the clause in the deal that gave the United Breweries (UB) group the right to sell its remaining shares in USL to Diageo at Rs 1,440 apiece within seven years.

Diageo did not confirm if it had accepted Sebi’s observations. If it does, it could launch the open offer.

The deal had been pending as the share purchase agreement between USL and Diageo contained a ‘put option’ clause that, being an over-the-counter forward contract, was not allowed by Sebi. Technically, Sebi doesn’t clear any public offer, it only issues its observations on the offer document filed with it.

“If Sebi has given some serious comments, the firms may not like to go ahead with the deal. But given that the final observations have come after months, it is likely merchant bankers handling the open offer addressed the regulator’s concerns,” said a person with knowledge of Sebi workings.

The exact contours of the revised deal would be known when Diageo submits a fresh offer letter to shareholders.

“Diageo has filed the applications through its advisors. All questions must be directed to JM Financial. We are unable to comment,” said UB Spokesperson Prakash Mirpuri. Diageo couldn’t be reached for comment.

JM Financial, the merchant banker for the open offer, refused to divulge any detail of Sebi’s observations.

“Diageo and USL were keen to have the ‘put option’. However, given that the regulator has never allowed such a clause and that the verdict has gone against those who challenged Sebi’s stand, the two liquor giants must have agreed to remove it,” said a legal expert.

“We expect the Diageo deal to provide respite to (USL’s) burgeoning debt. Also, foreign management and synergy benefits will lead to further re-rating,” said Edelweiss Securities in a note.

The deal is also awaiting Competition Commission of India (CCI) nod. “Given that CCI has never blocked a deal, we hope it will soon clear it,” said a UB Group official.

(With inputs from Raghuvir Badrinath in Bangalore)