United Spirits shareholders say `no’ to sale of Diageo brands in India

Diageo, the UK brand that now owns a majority stake in Indian liquor major United Spirits, has failed to get public shareholders' approval for selling its own brands in India through its Indian acquisition.

In a filing with the Bombay Stock Exchange (BSE), United Spirits said that a proposal for licensed manufacture and distribution of Diageo's `Bottled in India' (bulk) products in India, for which it had sought approval through a postal ballot, had failed to go through.

The resolution sought the approval for United Spirits shareholders to manufacture and sell Diageo's brands such as Johnie Walker.

In fact, the shareholders rejected as many as 9 of the 12 resolutions, including some pertaining to agreements with entities connected to erstwhile promoter Vijay Mallya, seeking shareholders' approval through postal ballot.

For Diageo Plc, which is troubled by financial irregularities involving accounting and management staff, the shareholders' decision comes as a further setback to its efforts at better integrating its operations with the Indian company.

Shareholders at the extraordinary general meeting (EGM) held on 28 November rejected a loan agreement dated 3 July 2013 between United Spirits Ltd (USL) and United Breweries (Holdings) Ltd.

They also did not approve agreements signed between USL and UBHL on 30 September 2011, and 22 December 2011, that required UBHL to sell to the firm certain immovable properties, according to the BSE filing.

Other resolutions that failed to get the requisite majority votes include a services agreement dated 3 July 2013 between USL and Kingfisher Finvest India, a sponsorship agreement dated 11 June 2013 between USL and United Racing & Bloodstock Breeders and a sponsorship pact between USL and United Mohun Bagan Football Team Pvt Ltd.

Some resolutions had to get shareholders' nod with new norms on related-party transactions coming to effect.

A total of nine resolutions connected with entities related to USL chairman Vijay Mallya were defeated. Only three other resolutions were given the nod by the shareholders.

The three resolutions that were passed related to erosion of net worth of the company, sales promotion agreement and trademark licence pact, according to the BSE filing.

A USL spokesperson said the company will look into the reasons for the shareholders taking exception to some of the resolutions. The company will take a decision on holding another meeting soon.

In a filing with the exchanges, USL said a key resolution regarding approval of a loan agreement between USL and UB Holdings has not been approved by the shareholders. Another resolution regarding sale of immovable properties to USL by UB Holdings also did not find favour with the shareholders.

The filing also pointed out that according to the regulation, the promoters were prohibited from voting on the resolutions. These included, Relay BV, which owns 54.78 per cent of the share capital of the company, United Breweries Holdings, Kingfisher Finvest India, and others who hold 4.09 per cent.

However, five of the promoters of the company - UB Holdings, Kingfisher Finvest India, Devi Investments, Rossi and Associates and Vittal Investments - exercised their votes in favour of the resolutions relating to approval of sales promotion agreement between USl and Diageo and the one between USL and PE Data Centre Resources Ltd.

The filing said the scrutiniser has invalidated the votes by these entities. It also said the company will investigate the validity of the votes exercised by these entities.

The resolutions that were rejected by the shareholders are (for approval at least 75 per cent of votes is required from shareholders):

• Loan agreement between the company and UBHL (Voted against: 44.12 per cent);
• Agreement between the company and UBHL to sell to the company certain immovable properties (27.12 per cent);
• Agreement with Kingfisher Fiinvest India (77.17 per cent);
• Advertising agreement with Watson Ltd (58.78 per cent);
• Sponsorship agreement between the company and United Racing & Bloodstock Breeders. (58.25 per cent);
• Sponsorship between the company and United Mohan Bagan Football team (32.69 per cent);
• Aircraft services between the company and UB Air Pvt Ltd (77.53 per cent);
• Properties call agreement between the company and PE Data Centre Resources (75.52 per cent); and
• Contribution agreement between the company and Vittal Mallya Scientific Research Foundation. (47.48 per cent).

A total of 127 public shareholders participated in the voting, which suggests institutional stakeholders played a major role in the defeat of the majority of the resolutions.

United Spirits had reported a 19-per cent increase in volume sales at 9.2 million cases of its 'prestige' category of brands and above  against sales of 7.7 million cases in the year-on-year quarter.

Overall volumes grew 5.8 per cent to 29.7 million (28.1 million in the previous year quarter) while value grew 8.3 per cent to Rs2,178.6 crore (Rs2,011.5 crore in the previous year quarter).