1. Could lose title to 1 crore shares of USL worth Rs 3K crore: Diageo

Could lose title to 1 crore shares of USL worth Rs 3K crore: Diageo

Diageo had purchased the shares amounting to 6.98 per cent stake in USL from UBHL as part the USD 3 billion deal in 2012 through which it had gained majority control in the Indian spirits maker.

By: | New Delhi | Published: September 13, 2015 2:04 PM
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Diageo, which is the majority shareholder in USL with a 54.78 per cent stake, however, added that it would continue to be in control of USL even if it were to lose the title of the over one crore shares. (Reuters)

World’s largest spirits maker Diageo could lose title to over one crore shares of United Spirits Ltd (USL) worth over Rs 3,235 crore at current market price in case of ‘adverse’ ruling on several winding up petitions filed against Vijay Mallya-led United Breweries Holdings Ltd (UBHL) from which it had bought the shares.

Diageo had purchased the shares amounting to 6.98 per cent stake in USL from UBHL as part the USD 3 billion deal in 2012 through which it had gained majority control in the Indian spirits maker.

The share sale was, however, challenged in the courts by lenders to UBHL, which had defaulted on loans.

“…adverse results for Diageo in the proceedings … could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 1,01,41,437 USL shares acquired from UBHL,” Diageo informed shareholders in its annual report of 2015.

Based on the current share price of USL at Rs 3,193.35 apiece, the 6.98 per cent stake is worth Rs 3,238.51 crore.

Diageo, which is the majority shareholder in USL with a 54.78 per cent stake, however, added that it would continue to be in control of USL even if it were to lose the title of the over one crore shares.

“Diageo believes it would remain in control of USL and be able to consolidate USL as a subsidiary regardless of the outcome of this litigation,” the company said.

Diageo, under a share purchase agreement (SPA) with UBHL and various other sellers, had acquired 21,767,749 shares (14.98 per cent) in USL for a total consideration of Rs 3,130 crore, including the 1,01,41,437 shares from UBHL.

Prior to the acquisition from UBHL on July 4, 2013, the High Court of Karnataka had granted leave to UBHL to enable the sale to Diageo to take place notwithstanding the continued existence of five winding-up petitions that were pending against UBHL on November 9, 2012, being the date of the SPA.

“Additional winding-up petitions have been brought against UBHL since November 9, 2012, and the Leave Order did not extend to them,” Diageo said.

At the time of the completion of the UBHL share sale, the Leave Order remained subject to review on appeal, the company said.

Explaining why the company went ahead with the share purchase despite pending litigations, it said: “… it was considered unlikely that any appeal process in respect of the Leave Order would definitively conclude on a timely basis and, accordingly, Diageo waived the conditionality under the SPA relating to the absence of insolvency proceedings in relation to UBHL and acquired the 10,141,437 USL shares from UBHL at that time.”

Earlier this year, a 17-bank consortium led by SBI had initiated the process of taking over physical possession of the Kingfisher House, worth Rs 100 crore.

Mallya has been under scanner over issues at his various group companies, including USL, where he has sold the controlling stake to UK-based Diageo.

UK-based Diageo has spent nearly USD 3 billion for a controlling stake of about 55 per cent in United Spirits Ltd (USL). The company had first acquired 25 per cent in USL from Mallya-led UB Group in late 2012, while it bought further shares from non-promoters last year.

In April this year, Diageo-controlled USL Board said it has “lost confidence” in Mallya after an internal probe and a forensic inquiry by PwC revealed alleged fund diversion to Kingfisher and other UB group entities.

USL said “various improprieties and legal violations” were found in the probe into loans given to UB Group firms and it asked Mallya to quit the board.

However, Mallya rejected the charge against him and said Diageo has contractual obligations to support him.

In July, 2015, USL alleged irregularities and potential violations of law in diversion of funds by UB Group and said it is initiating process to recover dues of Rs 1,337 crore.

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