Diageo hikes stake in United Spirits to 55%

Our Bureau Bangalore | Updated on July 02, 2014 Published on July 02, 2014


The UK major forks out ₹11,448 cr to clinch the deal with new offer at ₹3,030 a share

Diageo Plc, the world’s largest distiller, has acquired an additional 26 per cent stake in United Spirits, taking its total share in India’s largest liquor maker to nearly 55 per cent.

Diageo said on Wednesday that it had completed a tender offer to acquire shares after its first attempt to do so in November 2012 failed to elicit much response.

Diageo, the maker of iconic drinks such as Johnnie Walker whisky and Smirnoff vodka, forked out ₹11,448 crore to buy 26 per cent stake.

Diageo has invested a total of ₹18,023 crore to take its stake to 54.78 per cent in United Spirits earlier controlled by Vijay Mallya. Diageo’s first attempt to buy 26 per cent stake from the public was priced at ₹1,440 a share and it was able to mop up only 0.4 per cent.

‘Provides confidence’

In April this year, Diageo again offered to buy shares but doubled the price to ₹3,030 a share which resulted in it receiving an overwhelming response from investors.

A statement from Diageo said the shares tendered and accepted by the company are in the process of being transferred to its wholly-owned subsidiary Relay BV and represent 26 per cent of United Spirits’ issued share capital.

According to an analyst with ICICI Direct, Diageo’s endeavour to significantly increase the stake in USL provides confidence towards its commitment to turn around USL in India. “With Diageo having better control of USL, we believe the structural changes will get implemented at a more rapid pace, thereby providing scope for further upside.”

Nomura analysts Manish Jain and Anup Sudhendranath, in a research report, said: “As the market leader and now under the ownership of Diageo, we think UNSP will benefit the most, as a large part of its portfolio is still in the regular segment, despite the strong moves towards premiumising its portfolio over the past three years. A higher-end portfolio will boost profitability — one of the main reasons why we like UNSP from a long-term perspective.”

India is considered the world’s largest whisky market with United Spirits owning 40 per cent of the Indian market in volume terms.

“India has now become one of Diageo’s largest markets and will be a major contributor to our growth ambitions,” Diageo Plc’s Chief Executive Ivan Menezes said in a statement.

The statement also said the financials of United Spirits will be consolidated into Diageo’s balance sheet from Wednesday. On June 29, Diageo said the ₹1,350-crore loan given by United Spirits to Vijay Mallya’s UB Holdings might be accounted for in its balance sheet.

Fair trading’s concerns

Last month, United Spirits decided to sell Whyte & Mackay, the Scottish whisky maker, for about $738 million after the UK Office for Fair Trading raised concerns that with Diageo taking over the Indian liquor maker, it could lead to higher blended whisky prices in the UK.

Nomura analysts expect the profitability of United Spirits’ to almost double from current levels in the long term.

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Published on July 02, 2014
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