The Hindu Business Line : United Spirits stake sale talks with Diageo make no headway

United Spirits wants to sell its stake to a strategic partner as it looks to de-leverage its balance sheet which has a net debt of around Rs 6,100 crore.

K. Giriprakash

Bangalore, May 4 The world’s largest liquor maker Diageo’s plan to pick up a stake in United Spirits is hanging fire as both the companies struggle to identify a firm structure for the deal.

In another development, Diageo has ruled out any plans to pick up a stake in United Spirits’ arm, the Scotland-based Whyte & Mackay. In one of its latest presentations to the investors, United Spirits had said that it is willing to sell about 49 per cent in Whyte & Mackay.

A Diageo spokesperson told Business Line that while the discussions between both the companies continue, they may not necessarily lead to a transaction. He said issues regarding a definitive structure were still being negotiated. “There are discussions between Diageo and United Spirits but these discussions have not yet identified a structure that is acceptable to both parties,” Diageo’s head of financial communications, Mr James Crampton, said.

He, however, did not want to comment on the issue of Diageo’s possible move to acquire a stake in Whyte & Mackay. “We do not comment on market rumour or speculation,” he said.

United Spirits wants to sell its stake to a strategic partner as it looks to de-leverage its balance sheet which has a net debt of around Rs 6,100 crore. It plans to sell about 18.6 million treasury shares on a fully diluted equity (worth about between Rs 1,300 crore and Rs 1,350 crore at the current prices) to Diageo.

But United Spirits is also in talks with a few others, including Pernod Ricard, for a stake sale which could be as high as 37 per cent, which is equivalent to the promoter’s holding. But United Spirits, which has over 55 per cent share of the Indian spirits’ market, may also place restrictions on its joint venture partner on increasing its stake over that of the promoter or even act in unison with a “friendly” financial institution to pick up stake from the secondary market.

Issues to be ironed out

But an analyst with a brokerage firm said with regard to Diageo that there are several more issues before a transaction could take place with United Spirits. Issues such as pricing, Diageo’s role as a strategic partner and distribution of Diageo’s brands in India need to be ironed out during the negotiations.

The analyst said while the stake sale to either a strategic or a financial investor is bound to happen, its timing remains uncertain.

But Mr Vijay Mallya, chairman of the UB Group which owns United Spirits, had told Business Line last month that the company may not take more than six months to find a partner.

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