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United Spirits will return, yet again, to the shareholders to seek approval of all special resolutions rejected at last week’s extraordinary general meeting.
It will take at least another 45 days before the EGM (extraordinary general meeting) can be held again, after the notice to shareholders is sent.
Last week, minority shareholders rejected as many as nine of the 12 special resolutions put up for vote. Another resolution, seeking approval for manufacture and marketing parent Diageo’s brands—key to the full integration of United Spirits with Diageo—was also rejected through a postal ballot. All these resolutions, if passed would have benefited USL chairman Vijay Mallya’s companies.
A USL spokesperson told BusinessLine that the proposed contracts with Diageo for full distribution by USL of the Diageo portfolio of international brands in India are value accretive for USL and form part of its strategy of building and extending its competitive advantage in the premium and above market segments.
Surprising turn of eventsThere was a strong vote in favour of the resolutions but it fell just short of the required 75 per cent. Along with Mallya, Diageo hold a total of around 60 per cent stake in the company.
The company needed 75 per cent of the rest of the 40 per cent to get the resolutions approved. But it fell short by about 4.5 per cent.
MarketingExpressing surprise at the turn of events, the spokesperson said: “We will now look to understand the basis for the shareholder view underpinning this vote with the intention of returning to shareholders for approval.”
Sources inside USL said that currently the company was marketing Diageo’s brands for a distribution fee which works out to about 6 per cent of the total revenues.
If the resolution to manufacture as well as market the brands, such as Smirnoff vodka, had been passed, USL’s revenues would have been boosted by ₹600 crore. Its EBIT would have improved by ₹60 crore. An analyst with a brokerage house said with the rejection of these resolutions, Mallya finds himself increasingly isolated. “The moot question is if it is so clearly accretive (which it is) why would institutions vote against it—unless they are being guided to do en-mass,” the analyst pointed out.
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