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USL shares rise 35% on Diageo deal

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SummaryShares of United Spirits on Monday rose 35% following UK-based Diageo Plc’s announcement last week that it would pick up a majority stake in the company, a move that is expected to help ease up the company's balance sheet.

Shares of United Spirits (USL) on Monday rose 35% following UK-based Diageo Plc’s announcement last week that it would pick up a majority stake in the company, a move that is expected to help ease up the company's balance sheet.

The shares reached a peak of R1,877.15, a 12-months high on the Bombay Stock Exchange (BSE) during Monday's trading before closing at R1,834.60, a gain of 34.93% over Friday's closing price of R1,359.70. The company's shares had touched a 12-month low of R450 on January 12 this year.

“The reason for the stock going up is that Diageo will bring its premium portfolio to USL. On top of that, you will have an earnings upgrade on the deleveraging and margin improvement over the medium to long term,” said Gaurang Kakkad, equity research analyst, Religare Capital Markets. USL's balance sheet had come under pressure following its acquisition of Scotch whisky company Whyte & Mackay for £595 million in 2007.

Diageo's agreement to pick up an initial 27.4% in the company at R1,440 per share would bring in R3,300 crore to USL, which is expected to help in retiring its current debt of around R8,300 crore. The UB Group's holding company, United Breweries Holdings (UBHL) will receive R2,400 crore from the sale of its stake in USL.

Meanwhile, shares of UBHL fell 5% to close at R129.25, while shares of Kingfisher Airlines gained 4.66% to close at R14.6 on Monday.

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