Diageo takes 53.4% stake in United Spirits for $2.1 bn

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UB Group chairman Vijay Mallya shakes hands with Diageo COO Ivan Menezes after inking the deal on Friday. UB Group chairman Vijay Mallya shakes hands with Diageo COO Ivan Menezes after inking the deal on Friday.
SummaryThe world’s largest spirits maker Diageo has finally entered India, the world’s largest market for whisky, by agreeing to buy 53.4% stake in Vijay Mallya’s United Spirits for R11,166 crore.

The world’s largest spirits maker Diageo has finally entered India, the world’s largest market for whisky, by agreeing to buy 53.4% stake in Vijay Mallya’s United Spirits for R11,166 crore ($2.1 billion). Though Mallya will lose control over the company once the transaction is complete, he will remain its chairman. The transaction will be the biggest inbound deal in recent times after the $9-billion investment by BP in Reliance Industries and the $8-billion Vedanta Resources acquisition of Cairn India last year.

“I have not sold the family silver; I have only embellished it,” Mallya told reporters on a conference call after the deal was announced. “The seeds of this partnership were sown six years ago and I am delighted to say we are equally proud that it has come to fruition,” he said.

Both parties, in talks for a long time now, said on Friday that the deal would be structured into two phases. In the first phase, Diageo, which makes some of the finest scotch whisky brands like Johnnie Walker and Smirnoff Vodka, will acquire a 27.4% stake in USL for R5,725 crore at R1,440 per share.

Of the 27.4%, 19.3% will be acquired directly from United Breweries Holding Ltd (UBHL) and certain USL subsidiaries and group trusts. The balance will come through a preferential allotment of new shares by USL shareholders to Diageo at R1,440 per share, amounting to 10% of the post-issue enlarged share capital of USL.

Once the share purchase is completed, Diageo will make the mandatory open offer for acquiring another 26% of the equity, taking its stake to 53.4%. The open offer will also be at R1,440 per share, a joint statement by the two sides said. After the deal, UBHL will continue to hold 14.9% in USL. The final amount of R11,166 crore represents a valuation of 20 times USL’s Ebitda for the fiscal 2011-12.

As a result of the stake sale, USL will get R3,300 crore, which will go towards retiring its current debt of R8,300 crore, while the group holding firm UBHL will get R2,400 crore.

Mallya’s USL, with Indian-made foreign liquor brands like Bagpiper and Royal

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