Sebi probes takeover code violations at United Spirits

$75-mn severance for Vijay Mallya may result in change of control

The Securities and Exchange Board of India (Sebi) is likely to issue an order against Anglo-Dutch liquor maker Diageo and United Spirits for violation of the takeover code. 

Sources said Sebi had taken the view that the $75 million (Rs 515 crore) severance package to former United Spirits promoter Vijay Mallya was in violation of the securities law, as it was not a part of the agreement at the time of making the open offer. 

The severance package could even warrant another open offer by Diageo to United Spirits shareholders because Sebi feels it has resulted in a change of ownership from joint control by Mallya and Diageo to sole control by Diageo.

Sebi had concluded its preliminary examination and could issue an order on the matter soon, said people with knowledge of the development.

Diageo had, in 2012, entered into an agreement with United Spirits to buy a 53.4 per cent stake in the Indian liquor company. The move had triggered an open offer required by the takeover code. The $75-million severance package for Mallya was announced in February 2016. 

Legal experts said if Sebi was of the view there had been a change of ownership at United Spirits in 2016, it could seek another open offer by Diageo.

In what could spell fresh trouble for Diageo and Mallya, Sebi has also directed the government-constituted quality review board to look into the statutory audit of United Spirits conducted by BSR & Co for 2013-14, 2014-15 and 2015-16.

This is in connection with the diversion of Rs 1,880 crore involving Mallya and some entities connected with him, as alleged by United Spirits.

“If there are shortcomings found in the course of the quality review, the board will refer the matter to the Institute of Chartered Accountants of India (ICAI) for initiating disciplinary action against that audit firm,” said Manoj Fadnis, president, ICAI.

Sebi had, in June 2016, asked United Spirits to revise the open offer it made in November 2012, as the price did not factor in a bank guarantee provided by Diageo to Watson, a Mallya-affiliated company. Diageo has challenged the Sebi demand in the Securities Appellate Tribunal.

“The guarantee was in respect of the liabilities of Watson under a $135 million facility from Standard Chartered,” Diageo had said in a regulatory filing last year.

Sebi in the notice said if any net liability was incurred by Diageo on account of the Watson backstop guarantee, it would be considered to be part of the price paid for the acquisition of United Spirits. 

Mallya, who is in the UK for many months now, has been declared a wilful defaulter by banks for Rs 9,000 crore of unpaid loans by his defunct Kingfisher Airlines.