Diageo makes new, ₹11,450-cr bid for 26% in United Spirits

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A year after Diageo’s open offer to acquire 26 per cent in United Spirits Ltd (USL) failed, the company on Tuesday announced another offer for over ₹11,448.9 crore.

The earlier open offer had failed as the offer price (₹1,440) was less than the then prevailing share price (₹1,762); the share price continued to rise thereafter.

Diageo’s tender offer to public shareholders at ₹3,030 a share seeks to acquire 26 per cent (37,785,214 shares) in USL. Diageo’s subsidiary, Relay BV, which already holds 28.78 per cent in USL, will pick up 26 per cent taking its total stake to 54.78 per cent.

Emerging trend

Tejesh Chitlangi, Partner, IC Legal, said “A second open offer in quick succession by Diageo for United Spirits shows an emerging trend of bulk acquisitions and making of open offers by MNCs rather than increasing the stake through creeping acquisitions.”

Diageo said that the deal would be funded through cash and debt. Diageo’s investment in USL would take seven years to be economic profit positive (the excess of returns on invested capital over the cost of capital) and would be EPS accretive by FY16, it added.

The offer would commence around June 11 and end around June 24. Diageo group company, Relay BV, along with four others, in November 2012, wanted to buy 53.36 per cent in United Spirits’ expanded share capital through a combination of share purchase agreement (17.36 per cent), preferential allotment (10 per cent) and an open offer (26 per cent). However, it was able to pick up only 25.02 per cent — 14.98 per cent through share purchase, 10 per cent through preferential allotment, and 0.04 per cent through the open offer.

Diageo could not buy the remaining 2.38 per cent through share purchase as the seller, USL Benefit Trust, could not obtain lender approvals. The matter is still being pursued.

In addition, on December 20, 2013, the Karnataka High Court decided to annul the stake sale by UB Holdings to the Diageo group.

On Tuesday, the United Spirits scrip closed at ₹2,853.15 on the BSE, up 11.6 per cent.

Related link: No management change in USL

(This article was published on April 15, 2014)
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