Shares of United Spirits (USL) continued their slide for the second consecutive day on Tuesday on concerns that the proposed deal with Diageo could face fresh roadblocks. The consortium of lenders, led by the State Bank of India (SBI), have already started selling pledged shares of USL.
On Tuesday, shares of the Vijay Mallya-owned entity lost 1.57%, or R29.65, to close at R1,859.80. This was on the back of Monday?s fall of 0.45%.
Incidentally, Monday also saw the independent directors of the company giving their stamp of approval to the open offer price of R1,440.
?Based on the recommendations, independent directors are of the opinion that the open offer to the public shareholders of United Spirits is fair and reasonable as on the agreement date,? the notice filed with the exchange stated.
While the independent directors have approved the open offer price, the Street is sceptical about the success of the open offer due to the simple reason that the current market price is higher than the open offer price.
Meanwhile, Tuesday?s share sale by lenders in the open market would make Diageo’s acquisition all the more difficult.
According to BNP Paribas analysts Alok Dalal and Vijay Chugh, “the probability of the open offer being taken up appears unlikely at current levels” due to the huge difference (nearly 23%) between the current market price and the open offer price.
According to Gautam Sinha Roy, vice-president, equity strategy, Motilal Oswal Financial Services, the fresh sale by lenders would fragment the ownership of United Spirits that will make the deal-making process all the more difficult.
?This (share sale by lenders) makes the process for Diageo much more tedious and could also result in some weakness in the stock in the near term,? Roy said.
A recent Deutsche Bank report stated that the lenders might be tempted to sell United Spirit’s shares in the open market to optimise the realisation (compared to R1,440 which is the open offer price).
?We believe that it is in everyone?s interest, particularly the lenders who have United Spirits shares as collateral, to see the deal through,? stated the report.