1. A graceful, negotiated exit from United Spirits could be Vijay Mallya’s best bet

A graceful, negotiated exit from United Spirits could be Vijay Mallya’s best bet

A negotiated exit would be the optimal solution for Vijay Mallya, the estranged chairman of United Spirits...

By: | Bangalore | Updated: May 7, 2015 3:40 PM
Vijay Mallya

Diageo-led USL had asked Vijay Mallya last month to step down as chairman of the firm after an internal inquiry report. (Reuters)

A negotiated exit would be the optimal solution for Vijay Mallya, the estranged chairman of United Spirits (USL), industry watchers believe. Mallya has so far been defiant to the USL Board’s call for his resignation as chairman, saying the inferences and allegations were “unjustified and false” and that the report was based on half-truths and twisted facts against the previous management.

“The positions taken by both parties are clear. Diageo wants Mallya out of USL. A negotiated exit would be the optimal solution. Mallya would do well to step down gracefully as his shareholding is inconsequential,” Shriram Subramanian, founder and managing director, InGovern Research Services, told FE.

Diageo-led USL had asked Vijay Mallya last month to step down as chairman of the firm after an internal inquiry report — into certain doubtful receivables, advances and deposits — revealed that funds were diverted from the company to UB Group companies, including Kingfisher Airlines. The inquiry, ordered by the board last September into certain transactions between 2010 and 2013, suggested that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and legal violations, USL said.

“I do not intend to resign as a director of USL and shall pursue the contractual obligations with Diageo Plc,”Mallya  said in response to the USL demand. Diageo had said in September, soon after Mallya was re-elected as director at a shareholder meet, that its contractual obligations to support Mallya were subject to him holding a minimum quantity of shares as well as the absence of certain defaults by UBHL or himself.

Most people following the developments feel Mallya is taking a tough position to secure a better bargain. “He is posturing for a negotiated exit while the agreement is still in force. A contract between two shareholders cannot hold the interests of the company and minority shareholders to ransom,” Shriram said.

“He is a fighter and may opt to fight. But for the good of the company he should step down. The issue should not impact the company. It is an issue between him and Diageo and if he has grievances against Diageo he should pursue it independently,” Amit Tandon, founder and managing director of Institutional Investor Advisory Services India, told FE.

Another proxy advisory firm Stakeholders’ Empowerment Services (SES) has advised Diageo to renege on its deal with Mallya if it is convinced of the findings of a forensic report. SES is of the opinion that if Diageo is convinced about the findings of report prepared by USL MD& CEO, then, in accordance with fiduciary duty to other shareholders, it must renege its commitment under the shareholders’ agreement.

Meanwhile, analysts are bullish on USL given its strong portfolio and India potential. Young and aspirational demographics, with rising incomes and changing lifestyle, provide USL a very attractive opportunity to capitalise on, reports Motilal Oswal. The India-made foreign liquor (IMFL) market is to be 70% of the total liquor market worth Rs 30,000 crore ($4.7 billion). USL is the leading IMFL player  with 41% market share by volume.

Never back down
* Mallya has so far been defiant to the USL board’s call for his resignation as chairman
* Most people following the developments feel Mallya is taking a tough position to secure a better bargain
* proxy advisory firm SES has advised Diageo to renege on its deal with Mallya if it is convinced of the findings of the forensic report prepared by USL MD& CEO

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  1. S
    saurabh saurabh
    May 7, 2015 at 3:30 pm
    Look before u leap.. or so the going goes....! He should have known that there is not a single airline any where in the world that has not shut down in a few years after making losses....! Aviation business is always a loss making business in the long run.... except national carriers that burn tax payer's money regularly..!
    Reply
  2. A
    Anup
    May 7, 2015 at 8:52 pm
    Graceful?! He has no idea what that means!
    Reply

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