United Spirits (USL) on Wednesday said it would once again approach shareholders...
United Spirits (USL) on Wednesday said it would once again approach shareholders to get their nod for exclusive licence and distribution agreements with its parent Diageo, a proposal that had failed to get enough votes from minority shareholders at a postal ballot last month. The liquor firm has now called for an extraordinary general meeting (EGM) on January 9 to pass the proposal.
This time around, USL has provided some financial details which indicate that the exclusive agreements would likely add Rs 700 crore in revenue to the company in the first full year as against Rs 42 crore under its existing sales promotion services agreement with Diageo’s Indian arm. It also said that the estimated addition to earnings before interest and taxes (EBIT) in the first full year is likely to be Rs 70 crore as opposed to Rs 16 crore in the current role as a sales agent.
“Following the declaration of the results of the postal ballot, certain investors expressed their view to the management of the company that disclosure of the estimated monetary benefits that are likely to accrue to the company pursuant to the Licence and Distribution Agreements would assist shareholders in better understanding the implications of the company entering into the Agreements,” USL said in the EGM notice.
The licences to manufacture and distribute Diageo’s brands — which include Johnnie Walker, Smirnoff and VAT 69 — are currently held by its wholly owned Indian arm Diageo India, which has a sales promotion services agreement with USL. The net sales revenue reported by Diageo India for the year ended 31 March 2014 was Rs 683 crore.
The transfer of these exclusive licenses to USL will mark the last leg of its integration with the British spirits firm in an acquisition process that began two years ago. Diageo currently holds 54.78% stake in USL
However, shareholders defeated the proposal, which had been put forward as a special resolution wherein the promoters were required to recuse themselves as it was a related-party transaction. Against the 75% majority required to pass a special resolution, only 70.2% votes were in favour. But the shareholders subsequently approved the existing sales promotion services agreement through a special resolution with 99.98% votes at an EGM on November 28.
“The Board has considered the above and recommended through circular resolution passed on December 12, 2014 that the proposal to enter into the Agreements be placed before the shareholders of the company again for their approval in an Extraordinary General Meeting,” it said. The only change in the new resolution is that two parties, Diageo Argentina SA and the Old Bushmill’s Distillery, have been removed from the distribution agreement, with USL saying it does not propose to trade in their brands in the foreseeable future.
Under Sebi’s new rules, companies are required to place material related-party contracts or arrangements before the shareholders for approval as a special resolution. Transactions with a related party are considered ‘material’ if they exceed 10% of the annual consolidated turnover of a company.
USL has indicated that sales revenue under the exclusive agreements would amount to 8 percentage points of the company’s reported results.
“The approval of the shareholders by way of a special resolution in respect of the Agreements is being sought by way of abundant caution and as a proactive measure,” the notice said.