A day after Diageo Plc offered to sell most of the Whyte & Mackay (W&M) business to ease competition concerns post-United Spirits (USL) acquisition, the UK-based company bought 19.7 lakh shares through open market purchases in the Indian major.
The shares were bought through Relay BV — an Amsterdam-based subsidiary of Diageo Plc — at an average price of Rs 2,400.
In an immediate reaction to the business hive-off development, the USL stock plunged to as low as Rs 2,400 on the BSE in early trade. But it recovered to end at Rs 2,581, still down of 1.5 per cent over the previous day’s close.
Earlier, Britain’s Office of Fair Trading (OFT) had found that a merger (of USL) could lead to “substantial lessening of competition in the supply of blended whisky to retailers.”
The parties are major suppliers of bottled blended whisky to retailers with Whyte & Mackay also being an important supplier of own-label blended whisky, the OFT said in a statement.
Following these observations, Diageo has offered to sell most of Whyte & Mackay, with the exception of two malt distilleries.
W&M was acquired by USL in 2007.
It may be recalled that Diageo’s Rs 5,441-crore open offer for USL shareholderas had received a tepid response. Last year, Diageo had announced it would pick up 53.4 per cent stake in USL in a multi-structured deal for a total of Rs 11,166.5 crore. As part of that deal, 26 per cent shareholding was to be acquired through an open offer.
Meanwhile, United Spirits on Tuesday informed the exchanges that its board will meet to consider the concerns raised by the OFT.
Analysts are positive on USL following the Diageo decision.
Morgan Stanley said: “We see it as a positive stock driver — if we assume that W&M assets are disposed of at a value close to the purchase price, USL would be nearly debt-free. While impact on FY15 earnings estimates would indeed be small, reduced leverage and resultant lower finance costs would improve earnings visibility, we believe.”
Interestingly, Morgan Stanley (through MS Asia Singapore Pte) on Tuesday offloaded 39.18 lakh shares, half of which was bought by Relay BV. There were no other details of other buyers.
Edelweiss maintains a ‘buy’ on United Spirits, as it sees the positive development will sharply reduce debt and lead to significant interest cost savings (interest caused 50 per cent operating profit erosion in Q2FY14). Also, this will improve working capital. The fund infusion will help bolster the capex plans, it added.
However, V. Srinivasan (Research Analyst-FMGC, Angel Broking), said, “We do not expect the sale of W&M businesses affect USL in a major way, as Diageo was anyway prepared for this eventuality. Further, the sale would help the company reduce its overall debt. We continue to remain neutral on the stock.”