Diageos open offer for United Spirits may fail

Written by feBureau | Mumbai | Updated: Apr 11 2013, 16:58pm hrs
DiegeoDiageo offers a max of Rs 1,440 for every share of USL. (Reuters)
The much-delayed open offer by Diageo Plc to acquire a further 26% stake in the Vijay Mallya-owned United Spirits (USL) finally opened on Wednesday even though it is widely believed that the offer would fail and the London-based spirits major would find it difficult to acquire a majority stake in the Indian entity.

Diageo, which boasts brands like Smirnoff and Johnnie Walker, is offering a maximum of Rs 1,440 for every share of USL tendered in the open offer. This is nearly 21% lower than the current market price of Rs 1,818.50.

While the number of shares tendered on the first day of the offer could not be ascertained, market players say that it is highly unlikely that shareholders would tender their shares given the huge difference between the offer price and the market price.

United Spirits is a highly liquid counter and so shareholders would not rush to tender their shares at a discount, said an analyst. Also, there has been a lot of negative news around the company and the deal and many would wait expecting a revised price or offer, he added.

Incidentally, the failure of the open offer would leave Diageo with less than 30% stake in the Indian entity. According to the terms of the November deal, Diageo would get 19% from the promoter entities and would also be allotted a further 10% stake by way of a preferential allotment. Mallyas UB Holdings has said it will retain a 15% stake after the deal is completed.

According to Bloomberg, if Diageo completes its acquisition of shares from Mallya, it can nominate the CEO and CFO, and if it doesnt get a majority interest, Mallyas holding company has agreed to vote its remaining shareholding as directed by Diageo for a four-year period.