Shareholders of United Spirits (USL) will gather at an extraordinary general meeting (EGM) scheduled on Friday to vote on granting approval for exclusive licence and distribution agreements with parent Diageo, a proposal that had failed to garner enough votes from minority shareholders at a postal ballot in November.
“The special resolution is likely to get passed this time around as the company has given additional financial information about their agreement with Diageo,” said Shriram Subramanian, founder and MD of proxy advisory firm InGovern Research
“The company would also likely have reached out to leading minority investors. In the previous occasion, this resolution was presented to shareholders along with other contentious related party transactions, and hence investors rejected all related party transactions,” Shriram added.
Shareholders defeated the proposal which was put forward as a special resolution. A little over 70% public shareholders had approved the company’s proposal for a related-party transaction that involves acquisition of manufacturing and distribution of Diageo brands a special meeting on November 28, 2014. The company required at least 75% of the votes from the shareholders present during the vote under the new Companies Act.
Certain investors had demanded the company disclose the estimated monetary benefits USL would accrue from the license and distribution agreements with its parent company. “… disclosure of the estimated monetary benefits would assist shareholders in better understanding the implications of the company entering into the agreements,” USL had said in the an earlier EGM notice.
The company then provided some financial details, indicating the exclusive agreements would likely add R700 crore in revenue to the company in the first full year as against R42 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 R70 crore as opposed to R16 crore in the current role as a sales agent.
At present, the license to manufacture and distribute Diageo’s brands such as 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 R683 crore.
The transfer of Diageo’s 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.
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.