United Spirits-Diageo deal gets shareholder approval

By: | Published: January 11, 2015 1:49 AM

United Spirits (USL) said it has received approval from minority shareholders for exclusive...

The nod for these agreements will now put USL’s integration with Diageo back on track.The nod for these agreements will now put USL’s integration with Diageo back on track.

United Spirits (USL) on Saturday said it has received approval from minority shareholders for exclusive licence and distribution agreements with its parent Diageo, a proposal that had been defeated in a previous vote in October. The nod for these agreements will now put USL’s integration with Diageo back on track.

USL had approached shareholders afresh at an extraordinary general meeting on Friday and the special resolution received 76.33% votes in favour, just over the 75% required to pass a special resolution. While 99.88% of the retail shareholders voted in favour of the proposal, 25.28% of the institutional shareholders voted against it. The promoters had recused from voting, as it was a related party transaction.

In its second attempt, USL had provided financial details of the exclusive agreements to manufacture and sell Diageo’s brands, which include Johnnie Walker, Smirnoff and VAT 69, among others. The company said the agreements would likely add R700 crore in revenue to the company in the first full year against R42 crore under an existing sales promotion services agreement with Diageo India, the local arm of the British drinks company that currently holds these licences. It also said that the estimated addition to the earnings before interest and taxes (EBIT) in the first full year is likely to be R70 crore, as opposed to R16 crore in the current role as a sales agent.

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Diageo India, which reported a net sales revenue of R683 crore for the year ended March 2014, will not have any operations following the transfer of the exclusive contracts to USL.

Diageo currently holds 54.78% stake in USL. Under Sebi rules, companies are required to place material related party transactions before shareholders as a special resolution in which the promoters are required to recuse themselves from voting.

Separately, on November 28, the company’s minority shareholders had also defeated nine existing material related party transactions between USL and entities of Vijay Mallya’s UB Group. Some of these transactions include a R1337.42-crore loan agreement with United Breweries Holdings, a R33.14-crore property purchase agreement with UBHL, advertising agreements with Mallya’s Formula One team and sponsorship agreements with the football team Mohun Bagan and racing team United Racing & Bloodstock Breeders. “The consequences of non-approval by shareholders of these legally binding contracts is extremely unclear. We will be approaching regulators to seek clarification on the way forward with respect to the contracts that did not receive shareholder approval,” USL’s managing director and CEO Anand Kripalu had said in an email interaction last month.

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