Diageo closes United Spirits acquisition with 25% stake

Liquor major Diageo today announced completion of equity acquisition in Vijay Mallay's United Spirits with purchase of 14.98 per cent stake against the 27.4 per cent originally hoped for.

Diageo, however, has ended as the major shareholder in USL, the leading Indian spirits company, with a shareholding of 25.02 per cent.

The British liquor giant said it acquired 14.98 per cent stake in United Spirits Limited, at a consideration of Rs1,440 per share involving a total cost of Rs3,134.56 crore (£344.19 million) as the offer closed today.

On 27 May 2013, Diageo subscribed for a preferential allotment of new shares in USL amounting to 10 per cent of the post-issue enlarged share capital at a total consideration of Rs2,093 crore (£249.26 million). Separately, Diageo acquired 58,668 additional USL shares in the tender offer for a total consideration of Rs8.58 crore (£983,789). 

Diageo now holds 36,359,192 shares representing 25.02 per cent of the enlarged USL share capital at an aggregate cost of Rs5,235.85 crore (approximately £594.43 million).

This represents a multiple of 18n times of USL's EBITDA for the year ended 31 March 2013 and Diageo expects the transaction to be EPS accretive in the second year with economic profit in 5 years, assuming a 12 per cent weighted average cost of capital (WACC).

Diageo's open offer for USL largely failed, with the company acquiring only a small fraction of shares in this way, as it decided not to lift its offer price despite a surge in the value of United Sprits shares earlier this year.

However, with a majority stake, Diageo said it would now begin to implement its own operational and governance standards at United Spirits, although this could involve greater management time, costs and resources than originally expected.

''USL's strong market-leading position combined with Diageo's strength and capabilities opens an exciting and important new chapter for Diageo in the attractive Indian spirits market. Since we received approval for this transaction we have been getting ready for closing and integration. Having completed the share purchase, we will now begin the work to identify and capture the significant growth opportunities within this attractive market,'' Ivan Menezes, chief executive of Diageo, said.

He said the acquisition, although incomplete, has helped to transform Diageo's position in India, a market, which is one of the biggest growth opportunities in the industry.

''I am very pleased that we have completed our share purchase agreement today. USL has entered into the next stage on its journey and I look forward to remaining part of that journey in my role as chairman of USL,'' Vijay Mallya, chairman of the UB Group, said.

Mallya will continue as non-executive director and chairman of USL.  Ashok Capoor will continue as CEO of USL.

Following the preferential allotment, Diageo Bidco nominated Gilbert Ghostine as a non-executive director of USL, and USL confirmed that appointment at that time.  Now, following closing of the share purchase agreement, Diageo Bidco has nominated Ravi Rajagopal as a non-executive director of USL.

In addition, Diageo Bidco has confirmed PA Murali as CFO and has also nominated him as an executive director of USL.  These appointments are expected to be confirmed at a USL board meeting later today.

The board is also expected to confirm the appointments of Arun Gandhi, Sudhakar Rao, D Sivanandhan and Renu Karnad as additional non-executive directors of USL, all of whom are independent.

USL will now have 10 directors on its board.