New Delhi: The world's biggest spirits group, Britain-based Diageo Plc Friday agreed to buy a controlling 53.4 percent stake in liquor baron Vijay Mallya's United Spirits Ltd (USL) in a Rs.11,166.5 crore (USD 2 billion) deal.
Diageo, USL and United Breweries (Holdings) entered into a two-part agreement under which Mallya will continue as chairman of USL and UBHL and work with Diageo for the premiumisation of business in India, the world's largest whisky market.
According to a Diageo press release, an agreement has been reached to acquire a 19.3 percent interest in the current share capital of USL at a price of Rs.1,440 per share from the UBHL group, the USL Benefit Trust, Palmer Investment Group Limited and UB Sports Management (two subsidiaries of USL) and SWEW Benefit Company (a company established for the benefit of certain USL employees).
Following this disposal, the UBHL group would continue to have a shareholding in USL amounting to 14.9 percent of the current share capital.
The other agreement is that shareholders of USL will be asked to approve the preferential allotment to Diageo at a price of Rs.1,440 per share of new shares amounting to 10 percent of the post-issue enlarged share capital of USL.
These agreements would trigger an obligation on Diageo to launch a Mandatory Tender Offer to the public shareholders of USL. Diageo then will launch a tender offer to acquire - at a price of Rs.1,440 per share - a maximum of 37,785,214 shares, which equates to 26 percent of the enlarged share capital of USL.
On completion of the share purchases and in the event that the tender offer were fully subscribed, Diageo will hold 53.4 percent of the enlarged USL share capital at an aggregate cost of Rs.111,665 million (approximately 1,285 million pounds).
Also, Diageo and Mallya have entered into a memorandum of understanding under which they will form a 50:50 joint venture which will own United National Breweries' sorghum beer business in South Africa. Diageo's investment for its 50 percent interest in the joint venture is expected to be approximately $36 million (approximately 25 million pounds), subject to adjustment.
Diageo and Mallya are also considering the possibility of extending this joint venture to maximise opportunities in certain emerging markets in Africa and Asia (excluding India).
"I am delighted at the opportunity Diageo has to be part of India's large and growing local spirits market. As a result of the agreements we are announcing today we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers," said Diageo Chief Executive Paul S Walsh.
"USL's number 1 position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India's increasing number of middle class consumers look to enjoy premium and prestige local spirits brands as income levels rise."
Mallya, on his part, said: "I have had a long association with Diageo and therefore I am confident that this winning partnership with Diageo provides USL with the best possible platform for future growth."