Drinks giant Diageo yesterday unveiled billion-pound plans to take its stake in India’s biggest spirits producer to more than half.
The vast corporation behind Guinness, Smirnoff and Johnnie Walker already holds a dominant interest in the Indian firm through a voting agreement with other major shareholders.
But the plan to up its holding from the present 28% to around 55% will see Diageo take full control of a major player in the vast Indian market.
Bangalore-based United Spirits, owned by flamboyant tycoon, politician and Sahara Force India principal Vijay Mallya, operates a number of bestselling domestic brands as well as Scotch assets including Whyte & Mackay.
Diageo which is represented on the USL board by former CEO Paul Walsh has already offered to sell the bulk of the Whyte & Mackay business, with the exception of the Dalmore and Tamnavulin malt distilleries in north-east Scotland, in an effort to calm the fears of UK competition authorities.
Whyte & Mackay’s Invergordon, Jura and Fettercairn distilleries, and all of its central operations, are expected be marketed under the proposed remedy, with Diageo more interested in making gains from a growing Indian middle class.
Under the tender announced yesterday, Diageo expects to pay around £1.13 billion for 37.7 million shares with its 3,030 rupees per share offer marking a 20% premium to the 60-day average price, and 22.5% above what it paid for its last tranche of stocks earlier this year.
USL revenues reached £1.05bn in the year to the end of March 2013, with earnings before deductions of £134m. Diageo reckons its investment in the Indian group will help boost its earnings per share within two years.
If the tender is not fully subscribed, Diageo will still retain a controlling interest through its voting agreement, but these terms will be relaxed when its stake passes 50%.
The company warned of a “material” risk that regulators at the Securities and Exchange Board of India could order changes to the proposed terms and conditions of the deal, noting limited precedent over new regulations introduced in late 2011.
Diageo also provided an update on a complex series of legal proceedings which continue to threaten its July purchase of shares amounting to a 7% stake in USL from parent United Breweries (Holdings) Limited
The group said it expects its appeal against an adverse December ruling by the High Court of Karnataka to be heard later this month.
Separate winding up petitions against heavily-indebted UHBL have since been lodged by creditors, with court hearings due this summer.
Diageo yesterday (TUE) said it still believes that the price it paid to UBHL was “fair and reasonable as regards UBHL, UBHL’s shareholders and UBHL’s secured and unsecured creditors”.
“However, adverse results for Diageo in the proceedings referred to above could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 10,141,437 USL shares acquired from UBHL,” it warned.
“There can be no certainty as to the outcome of the existing or any further related legal proceedings or the timeframe within which they would be concluded.”
Diageo also said it continued to pursue the acquisition of a separate 2.4% stake from the USL Benefit Trust, but had been frustrated by “certain lenders refusing to release security that they hold over those shares notwithstanding that they have been paid in full.”